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Debt ceiling: With debate on hold, where is US economy headed now?

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Exactly how perilous is that D.C. drama over the debt ceiling to the nation's economic health? The nerve-racking brinkmanship on the issue in the summer of 2011 was enough to spook Wall Street and lower the US debt rating.

And if the word "recession" isn't on the lips of most economists, some trace a path in that direction if the debt-ceiling issue isn't resolved.

But more on that later. First, let's take a look at why the economy is stuck in neutral, or as John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C., terms it, why "we are entering a slow-motion situation."

How slow? Mr. Silvia estimates the gross domestic product will increase at a 1.4 percent rate in the first quarter before showing some improvement, ending the year growing at a 2.4 percent annual rate. In other words, the economy may not be much different than last year.

Here are some of the head winds and tail winds the 2013 economy is facing:


The debt-ceiling battle

President Obama wants Congress to authorize an increase that will allow the government to pay its bills for several years. Republicans, while temporarily waiving a demand that increases in the debt ceiling be matched dollar-for-dollar with spending cuts, still hope to use the issue as leverage in negotiations over the federal budget.

How damaging could the battle be?

In mid-January, US Treasury Secretary Timothy Geithner, in a letter to Congress, said the government had, since the beginning of the year, been juggling accounts to meet its debt obligations and pay for such things as Social Security checks, veterans' benefits, and money owed to contractors.

"Even a temporary default with a brief interruption in payments that Congress subsequently restores would be terribly damaging," Mr. Geithner warned.

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