The economy last year suffered two significant body blows: a widespread tax increase with a series of spending cuts by the federal government, as well as the residual uncertainty of the fiscal cliff crisis and the pending uncertainty of Obamacare.
Given the hits at the start of the year, and the uncertainty before that, growth should have been low — and it was. Growth in the fourth quarter of 2012 was essentially zero. First-quarter 2013 growth was also low, at around 1 percent. Second-quarter growth came in stronger at a revised 2.5 percent. Third-quarter growth was estimated at 4.1 percent.
Note the trend here. No growth gives way to slow growth, which moves to moderate growth. As the rest of the world economies continue to improve, and as employment continues to grow slowly, it seems very probable that U.S. economic growth will continue at a moderate level, and it may well continue to accelerate.
We are not completely out of the woods here. A shock in the rest of the world — a war in the Middle East that drives oil prices up or a European crisis, for example — could certainly drive U.S. growth down again. U.S. political issues, such as the debt ceiling debate or the Federal Reserve’s reduction of its stimulus program, could also act to damage growth. We saw that at the end of 2012 and last summer, respectively. Rising interest rates could also act to moderate growth or prevent its acceleration.
Nonetheless, the fact that the economy has continued to grow at an accelerating rate despite all of the headwinds last year suggest that, absent setbacks, the recovery is solidly founded and likely to continue at or somewhat above current rates. While we haven’t seen a significant stock pullback since late last spring, the next market decline could be seen as an opportunity to increase exposure to equities — for those comfortable with a bit more volatility.
Wade A. Sarkis is managing partner at Canandaigua Financial Group, 475 N. Main St., Canandaigua.