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January jobs report: Will 'OK' jobs market make politicians complacent?

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In fact, the Labor Department said Friday that job growth was actually stronger in the final two months of 2012 than had been initially reported – a fact that helped to push stock prices higher even though the January job total didn’t exceed forecasts.

But here’s where the risk of complacency comes in.

The economy may not have fully felt the impact that the payroll-tax hike will have on consumer spending – since that change in take-home pay is only a few weeks old. And the “sequester” (automatic spending cuts) could shave as much as a percentage point from the pace of GDP growth in the second and third quarter.

Investors and the general public breathed a justified sigh of relief early in January, when Congress and President Obama reached a deal that averted many of the tax hikes scheduled to hit US consumers.

But Robert Dye, chief economist at the banking firm Comerica, warns that many fiscal issues are still outstanding, with Congress seeking a difficult balance between sustaining growth and putting the federal budget on sounder footing by reducing future deficits.

“Right now it is reasonable to assume that a significant portion of the $110 billion sequester will happen,” he wrote in an analysis published in January by Blue Chip Economic Indicators. “It is reasonable to assume that the total fiscal drag from increased taxes and reduced spending will be in the neighborhood of 2 percent of GDP, primarily felt in the first half of 2013.”

The result, Mr. Dye says, could be an economy that grows very little (perhaps at a 1 percent pace) or not at all for the first half of the year. That would leave the economy much more vulnerable than usual to the risk of recession.

If more optimistic economists are correct, the outlook may be brighter. In the Blue Chip survey of more than 50 forecasters, some see the economy growing at a pace higher than 2 percent in the first quarter, rising to 3 percent later in the year.

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