The one thing the U.S. government seems particularly good at is procrastination. The “sequestration” deadline on March 1 has come and gone, and no real plan has yet emerged to stop an automatic roster of federal budget cuts that, if left in place, will ripple through many sectors of the economy for years to come. While the While House estimated the cuts could equal $85 billion in fiscal 2013 alone, the markets seem to be taking them more or less in stride. Are we just getting used to Washington’s gridlock, or is there reason to be optimistic?
Ed Jamieson, Chief Investment Officer of Franklin Equity Group®, offers his quick take on the situation.
“Overall we are not that concerned about the sequester as it relates to the financial markets. From the research we’ve seen, if left in place, the sequester could provide a drag on the economy of about half a percent throughout the rest of the year. Economic growth is slow in the U.S. right now, but there are a number of positive factors that should help offset the automatic spending cuts. Housing in particular has been a drag for a number of years and by all metrics seems to be heating up. If that continues, economic growth due to a rebound in housing could by itself offset the negative effects of sequestration. Longer-term the boom in natural gas and oil production should lead to continued growth in manufacturing this year and beyond. In our view, there is enough momentum in these and other areas of the economy to help offset the effects of sequestration, and we expect the economy to continue to grind slowly higher. The markets themselves seem to suggest the economy can grow through sequestration.”
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