by Calculated Risk on 12/27/2012 08:22:00 PM

First from Neil Irwin at the WaPo: Three ways Washington could mess up the recovery in 2013. A few excerpts:

Going off the cliff. This is the most scrutinized possibility, the one that has been widely analyzed (and, as of Thursday morning, at least, seemed like a growing possibility).
...
If the nation goes fully off the fiscal cliff, and stays there, the Congressional Budget Office estimates it would amount to a drag on gross domestic product of 2.9 percentage points in 2013 ...
...
A deal with too much austerity, too fast. Going off the fiscal cliff is probably not even the likeliest risk (though the odds are changing all the time). Another risk is that while there is a deal to avert the entirety of the cliff, it is a deal that calls for enough austerity in 2013 to seriously undermine the nation’s economic prospects.
...
Debt ceiling hijinks. If the nation goes over the fiscal cliff, the results would be bad, but not catastrophic; we’ve had recessions before, we’ll have them again. But in late February or early March comes a deadline with even more at stake: The legally mandated cap on how much debt the Treasury can issue will become a binding constraint, setting the stage for the same messy negotiations that walloped financial markets and business confidence in the summer of 2011.

From an economic perspective, the thing that makes debt ceiling negotiations so perilous is the threat that Congressional Republicans are making — in effect, to allow the U.S. government to default on its debts if they don’t get their way on major spending cuts.

I think a fiscal agreement will be reached in the next couple of weeks (points 1 & 2), but we will have to see the details before analyzing the drag on the US economy. I'm not worried about the "debt ceiling" (point 3) - as I noted in 2011, there have been threats to not pay the bills before (that is what the debt ceiling is about), and it would be political suicide to default - so a bill will be passed.

Friday economic releases:
• At 9:45 AM, the Chicago Purchasing Managers Index for December will be released. The consensus is for an increase to 51.0, up from 50.4 in November.

• At 10:00 AM, the Pending Home Sales Index for November. The consensus is for a 1.8% increase in the index.

Earlier on new home sales:
• New Home Sales at 377,000 SAAR in November
• New Home Sales graphs