Calculated Risk: Key economic trends to watch

From one of Calculated Risk’s post last night:
I’d like to mention a few key economic themes that I will write more about soon:

• Residential investment (RI) has bottomed and is now contributing to economic growth. Since RI is usually the best leading indicator for the economy, the economy will probably continue to grow for the next couple of years.

• House prices bottomed in early 2012, and will increase further in 2013 – although not all areas are the same. A key this year will be how much inventory comes on the market (something I will track closely). More inventory would mean smaller house price increases.

• The drag from state and local governments is probably over following four years of austerity.

• Construction employment should pick up in 2013.

• The Federal deficit is declining fairly rapidly, and will decline further over the next few years – before starting to increase again due to health care costs.

These are all broadly positive. Even if the sequester goes into full effect, these economic trends will act as tailwinds — or at least as weaker and weaker headwinds — that might limit the depth of a recession spawned by too much budget cutting too soon.

As the yearly budget deficits decline — and I suspect they might even decline more than current estimates — it will be interesting to see how the politics of “crisis” play out.