The Economy Next Year: A Little Growth, a Few More Jobs
The fiscal cliff will be resolved Jan. 8.
Both sides will settle on a 37 percent tax rate on incomes above $250,000 and a 28 percent cap on deductions. Why Jan. 8? It's sometime after Jan. 1 and the week of New Year's when no one is serious about anything. My guess is the deal gets done a day or two after the market gets back to work, somewhere between Jan. 2 and Jan. 4 and then maybe falls out of bed on Jan. 7. That should get politicians' attention.
There will be at least one quarter of growth above 3 percent in 2013—maybe even two.
The relatively strong growth will happen as a result of investment pent up before the fiscal cliff. We'll get a brief period of the economy firing on at least 2 critical cylinders: consumer and business investment, along with housing. Europe should continue to be a drag next year, but global growth will become less of a drag. But there will be something of a boost in the early part of the year from Hurricane Sandy rebuilding. All of this assumes we fix the fiscal cliff.
Unemployment will end the year at 6.9 percent.
We should continue to make gradual progress in job growth, and maybe get a pop or two of some decent months if my GDP outlook ends up being right. That is, GDP higher than trend could bring the unemployment rate down a bit faster.
Chief of Staff Jack Lew will be the next Treasury Secretary.
The Obama administration will go with the safest choice. Lew is a budget expert who is close to the president and seen as very loyal. Among the criticisms of Lew is whether he's the best choice to speak to Wall Street, how deeply he will be respected abroad and whether he's the guy you want in the hot seat in the event of another financial market crisis.
Geithner will stay through the negotiations over the fiscal cliff and likely until his successor is either confirmed or well along the way. That could mean he could leave as early as January if the new Congress confirms his replacement quickly or even all the way until the inauguration.