The decision regarding raising the “debt ceiling” was postponed until mid-May, though in the meantime, U.S. politicians continue to wrangle on the automatic cuts (“sequester”) which supposed to take effect at the beginning of March.
Last Tuesday, President Obama urged congress (controlled by Republicans) to act quickly to temporarily postpone the automatic cuts, by replacing them with budget savings, including both spending reductions in expenses and tax breaks for the wealthy and corporations.
However, it seems that most Republicans see automatic cuts as a better alternative to Obama’s proposal, which includes also tax increases, so in the meantime, there is no solution.
We note that due to the tax increases which took place at the beginning of the year, combined with the expected spending cuts, the U.S. Congressional Budget Office (CBO) estimated this week that the economy will grow by 1.4% only in 2013, and that the unemployment rate will remain at a high level of approx. 8.0%.
Economic data released this week regarding the U.S. economy were mostly positive. A sharp drop was recorded in the U.S. Trade deficit data in December, a fact which is expected to contribute to an upward revision of the 4th quarter’s GDP.
Moreover, the Purchasing Managers Index for all sectors excluding manufacturing (ISM non-manufacturing) declined slightly in January, however, it remained at a relatively high level (55.2 vs. 55.7 in December), pointing to a recovery in U.S.’s growth rate in the 1st quarter of the year.