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A Sturdier US Economy Can Withstand Budget Cuts

Not that the spending cuts won't hurt many workers and consumers. And the longer the cuts are in place, the more they will slow growth, depress hiring and keep unemployment stranded at high levels.

If the automatic spending cuts aren't reversed, they would reduce economic growth in 2013 to 2 percent from 2.6 percent, wipe out 700,000 jobs and keep unemployment at 7.4 percent or higher through 2014, according to calculations by Macroeconomic Advisers, a forecasting firm.

Growth would rebound to 3.4 percent in 2014, the firm says. In part, that's because the Federal Reserve is expected to keep short-term interest rates near zero to blunt the economic damage from the spending cuts.

The spending cuts are taking effect just as the economy shows its most sustained improvement since the recession officially ended in June 2009.

The housing market, which had helped slow the economy's growth from the housing bust in 2006 until last year, is finally recovering. Sales of new homes rose last month to the highest level in 4½ years. Home prices rose in December from a year earlier by the most in more than six years.

The Commerce Department reported Thursday that business investment in buildings, machines and software rose at an 11.2 percent annual pace the last three months of 2012.

Companies are hiring more, too: Private employers added an average of 208,000 jobs a month in November, December and January, up from an average 155,000 from August through October.

That job growth is giving more people money to spend. After stagnating since the recession ended, hourly pay has risen faster than inflation the past three months. Families have reduced their debts and are in a better position to spend â¿¿ although they did get pinched when a Social Security tax cut expired in January, raising the annual tax bill of someone earning $100,000 a year by $2,000.

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