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US Economy Gets Lift From Housing, Other Tailwinds

In another sign of rising confidence, investors are shifting out of ultra-safe investments such as U.S. Treasurys. The interest rate, or yield, on the benchmark 10-year Treasury bond topped 2 percent on Monday for the first time since April. Bond yields rise when their prices fall.

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In the short term, the economy's headwinds are still restraining growth. They include:

â¿¿ BUDGET FIGHTS

The heaviest millstone weighing down the economy is the rift between President Barack Obama and Republicans over taxes and spending.

Further talks are expected this spring as several deadlines arrive: Across-the-board spending cuts are set to kick in March 1. Financing to run the government will expire by March 27, raising the threat of a government shutdown. And the federal borrowing cap must be raised by May 18 or the government could default on its debt.

Haziness around future tax and budget policy may already be restraining growth. A report from the Federal Reserve last week suggested that some employers delayed hiring late last year because of uncertainty over the fiscal cliff.

â¿¿ SLUGGISH HIRING

Job gains have held steady for the past two years at about 150,000 a month. That's only about enough to slowly reduce the unemployment rate, now at 7.8 percent.

Even in sectors that are recovering, many companies aren't yet adding jobs. Some are even cutting, especially in financial services. Bank of America, for example, has shed about 15,000 jobs in the past year.

In a robust recovery, monthly job gains are usually 250,000 or more. That's what it would take to rapidly reduce unemployment and force employers to raise pay to attract workers.

â¿¿ FEW PAY RAISES

For now, high unemployment is limiting pay. When employers have lots of job applicants to choose from, they have little incentive to give raises.

Hourly wages rose just 2.1 percent last year, only slightly above consumer inflation, which was 1.7 percent. Consumer spending, which drives about 70 percent of the economy, can't improve much until pay or job growth accelerates. Americans still are still reluctant to run up credit card debt to pay for extra consumption.

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