U.S. Capitol

By Jim Puzzanghera
December 31, 2014

The economy boomed through most of last year, a time when the nation’s capital was devoid of major budget fights and threats of government shutdown.

Economists worry, though, that the accelerating recovery could soon slow down with new standoffs in Washington as Republicans take control of Congress and President Obama shows no signs of backing down.

“It’s almost a certainty that you’re going to see some type of brinkmanship or saber-rattling,” predicted Chris Krueger, a policy analyst at financial services firm Guggenheim Partners. “The quiet is over.”

For the last year, Democrats and Republicans refrained from wrangling over the debt limit or pushing the nation to the edge of a “fiscal cliff” of tax hikes and spending cuts.

The relative political calm helped the economy post its strongest six-month stretch in more than a decade from spring through fall — including a gangbusters 5% annualized growth rate for the third quarter.

Consumer and business confidence soared.

For 10 straight months, the labor market has created more than 200,000 net new jobs, the best streak since the 1980s.

“There has been a pickup in economic growth in meaningful part due to the end of the political vitriol in Washington,” said Mark Zandi, chief economist at Moody’s Analytics.

In 2011, a bitter partisan battle over raising the debt limit led to the first-ever downgrade of the U.S. credit limit.

The following year, politicians went right to the edge of the so-called fiscal cliff of big tax increases and spending cuts before striking a deal to reduce their effect.

And in 2013, a stalemate over budget cuts led to a 16-day partial government shutdown that shaved 1.5 percentage points from what was then a persistently slow-growing economy, Zandi said.

But a bipartisan budget deal in late 2013 put Washington’s long-running fiscal drama on hiatus.

Each of the political dust-ups coincided with dips in business and consumer confidence, which otherwise have improved steadily over several years, said Jeffrey Zients, director of the White House’s National Economic Council.

“These self-inflicted wounds have a real impact on the economy,” he said. “In the last year or so, we haven’t had any.”
These self-inflicted wounds have a real impact on the economy. In the last year or so, we haven’t had any. – Jeffrey Zients, director of the White House’s National Economic Council

A key measure of consumer confidence from the University of Michigan and Thomson Reuters rose steadily through 2014 and in December hit its highest level since early 2007. The same thing happened with the small-business optimism index from the National Federation of Independent Business.

Another monthly business confidence measure, taken by Moody’s Analytics since 2003, hit a record high in December.

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