With no repercussions, why the pols could shut it down again
Friday's surprisingly strong jobs report coupled with a pretty good gross domestic product number on Thursday suggest—at least at first glance—that the U.S. economy remains in decent shape despite the best efforts of both parties in Washington to wreck it.
This is both a heartening thought—even dysfunctional D.C. can't stop the U.S. economy—and a depressing one.
It's depressing because without significant and obvious economic consequences, what's to stop politicians in the nation's capital from going to the brink once again in January, when the government runs out of money, and in February, when the debt ceiling needs to be raised?
Republicans bent on winning even more spending cuts and perhaps emboldened to again demand a delay in Obamacare can point to the numbers and say, 'Our efforts last time did not do any damage so why not do it all again?' "
And Democrats remain strongly opposed to accept any of these demands despite rampant problems with Obamacare. Senate Democrats facing tough re-election battles such as Mark Pryor of Arkansas, Mary Landrieu of Louisiana and Kay Hagan of North Carolina, all support some kind of Obamacare enrollment delay but the White House and Senate Majority Leader Harry Reid remain unshakably opposed.
The fairly decent economic numbers also make it less likely that Republicans and Democrats on the budget conference committee will be able to find a way to alter the next round of sequester spending cuts that will go into effect in January and almost certainly take a significant bite out of GDP growth in 2014.
Because if the economy is doing OK in spite of the sequester, where will pressure come from on Republicans who view the spending cuts not as an economic hindrance but as a prized policy achievement to be protected at all costs?
There is also a fool's gold quality to the recent economic data that gets quickly lost in the Washington spin machine.
Thursday's first read on third-quarter economic growth showed a gain of 2.8 percent, slightly better than 2.5 percent in the second quarter. But the gain was driven by an increase of $86 billion in inventories that is likely to get revised down. Consumption grew just 1.5 percent. In short, the third-quarter number now looks better than it probably was and the fourth quarter will likely be worse.
And the jobs number, while heartening overall, also showed a 0.4 percent drop in the labor-force participation rate, which may or may not be reversed in the post-shutdown numbers in November.
The November numbers also may show some shutdown impact that did not appear in October. But those numbers won't be released until close to the December deadline for budget negotiators to make a deal to fund the government.
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The jobs report also overshadowed weaker data on Friday on both consumer sentiment and consumer spending. Real consumer spending rose by just 0.13 percent in September, before the hit to confidence from the shutdown, not a good sign for economic growth the rest of the year.
There is also the potential impact of the more high-profile economic data on the Federal Reserve's plans to begin tapering asset purchases.
The job gains and modest economic growth appear to make it more likely that the taper will begin as soon as December just as Washington enters another round of possible budget and debt ceiling brinksmanship. If the Fed starts pulling out stimulus and Washington blows up again at the same time, 2014 could look pretty ugly.
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And even if the conventional wisdom is correct and Republicans decline to engage in more politically damaging brinksmanship later this year and next, the appearance of a strengthening economy will lessen already weak momentum in Washington to make other moves that could boost growth.
There will now be less incentive to move ahead on even limited immigration reforms that businesses badly want or corporate tax reform that could lower the top rate while broadening the base through loophole closings and aiding long-term deficit reduction.
In short, the economic data are not really all that good. But are probably just good enough to make sure Washington learns no lessons and does nothing to deliver a significantly stronger economy.
—By Ben White, POLITICO's chief economic correspondent and a CNBC contributor. White also authors the daily tip sheet POLITICO Morning Money [politico.com/morningmoney] Follow him onTwitter