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Economic outlook

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President Obama and Congress should pay heed to two positive reports on the U.S. economy released the same day $85 billion in budget cuts were slated to begin.

Americans feeling more confident about their future started to borrow more and go deeper into debt in the fourth quarter of last year, according to the Federal Reserve Bank of New York. Household debt, which incudes mortgages, credit cads, auto and student loans rose to $11.34 trillion, a slight increase of 0.3 percent, but, the Wall Street Journal reported, it was the “first fundamental increase since the third quarter of 2008.”

Americans, attracted by historically low interest rates, committed themselves to $553 billion in new mortgages, which is the major source of consumer debt. It follows years of a depressed housing market marked by declining property values and record numbers of foreclosures. The report also cited increases in outstanding auto loans, student loans and credit card balances.

Student loan debt, though, remains a concern. It has risen from $400 billion in 2005 to $966 billion at the end of 2012, and the percentage of loans delinquent more than 90 days has increased, reflecting the inability of recent graduates to find jobs.

On a related note, Freddie Mac, the government agency that backs nearly two-thirds of mortgages reported an $11 billion profit last year, the largest yearly gain ever, the Journal reported.

In another report, the Commerce Department said the economy grew 0.1 percent from October through December, a slight increase from what had been expected to be a downturn.

“Households spent money, businesses invested, and the housing market surged,” said Joel L. Naroff, an economist with Naroff Economic Advisors.

Although the last quarter was one of the weakest in the recovery, the Wall Street Journal reported, the upward revision means the economy has grown for 14 consecutive quarters, with the 2.2 percent growth in gross domestic product higher in 2012 higher than 2011.

The Commerce Department said the housing market was up 17.5 percent and business spending rose 9.7 percent in the fourth quarter.

The fourth-quarter growth in gross domestic product was less than the prior three months due in part to a nearly 15 percent reduction in federal spending during the quarter, the Journal said.

Overshadowing the reports, though, is the ongoing gridlock in Washington that will lead to $85 billion spending cuts, half in defense and half in non-defense, discretionary spending, in the next seven months unless Congress and President Obama find a way to compromise on an alternative deficit-reduction plan. The cuts will ripple through the economy.

Consumers are going to hold off buying that new car if they are not sure they will have a job next week or will see a 20 percent cut in pay if they are furloughed one day a week. And those who just invested in a new house will be wary of going into debt any more if they have to worry about making the mortgage payment with smaller or one less paycheck in the family.

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