Positive economic signs are springing up across the United States, Latin America’s most important sovereign trade partner, as political leaders in Washington inch closer to a tentative budget accord.
President Barack Obama met with Republican senators and House Democrats on Thursday in an attempt to break a deadlock over America’s yawning budget deficit, which has topped $1 trillion four years in a row, growing by $203.5 billion in February alone.
Republican House speaker John Boehner reiterated his aversion to cutting costs by raising taxes on individuals or businesses. On the plus side, the Democrat-controlled Senate Budget Committee remains committed to creating $1 trillion in new tax revenues by making modest spending cuts while repealing tax breaks for the super-wealthy.
Experts believe consensus can be reached, even if Republicans and Democrats remain at loggerheads over how to cut the debt – either by raising taxes or cutting spending.
Incoming US treasury secretary Jacob Lew described as “heartening” signs that senators and congressmen were increasingly saying that on many budgetary issues there was “more” for both sides to agree on.
While Washington fiddles, the broader economy continues its slow burning recovery. More positive figures emerged late in the week, providing heartening signs both for the world’s largest economy and for its leading business partners.
Jobs figures released on Thursday showed the number of new jobless claims falling to their lowest level in five years. More good news emerged in the form of retail spending, with consumer sales rising 1.1% in February year-on-year, the quickest pace in five months .
Analysts were quick to praise the steadily flow of positive news. “All the signs we see suggest that the American economy is continuing to pick up,” says Paul Dales, senior US economist at Capital Economics. “There are many reasons to be positive. US households have been saving, so they have more to spend. Car sales are rising strongly. New housing starts are up. And bank lending, unlike in Europe, is rising.” Holger Schmieding, chief economist at Berenberg Bank, said that the health of the US economy was “vital” to Latin American growth prospects. “If US demand and consumption continues to pick up, that is a very positive sign for Latin America, particularly for those countries who either already have free trade agreements with the US, or are about to finalize them,” he told Emerging Markets.
Legislators might fail to reach a budget consensus, leaving the government shut down in May. But analysts see this as a distant concern. “The real issue was the fiscal cliff, and that has been avoided,” says Schmieding. “I don’t think we are likely to see a shutdown – that would be far too politically risky for the Republicans.”
He highlighted a resurgent housing market as a key factor in America’s rebound. “The turnaround there is very pronounced, with residential construction growing at an annualized rate of around 15%.” Roubini Monitor, an analysts firm, forecast that new family home sales would jump 15% this year to 427,000.
But a survey of US consumer sentiment released yesterday showed that not everything was rosy, as the indicator plunged to its lowest since December 2011.
Adding to the worries, Ricardo Carneiro, the new IDB executive director for Brazil, told Emerging Markets he believed the US recovery would be a jobless one and “no good” for countries that are closely integrated with the world’s biggest economy.
— Extra reporting by Thierry Ogier
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