The budget shenanigans in Washington so far haven't had an effect on the recovery, but an extended period of lower government spending and job cuts will quickly lead to economic stagnation.
The economy is a self-reinforcing mechanism, a small dip in growth will be followed by further declines, even if the first dip was meant to be temporary. With jobs growing at a very modest rate, it won't take much to bring growth to a halt.
Aside from the very real possibility of a government-induced slowdown, the economy is doing well – in the modern sense that it's growing modestly. The number of jobs in February was 1.5 percent higher than last year, a small improvement over recent months, and unemployment fell to 7.7 percent. As usual, the heavy lifting was done by the health care sector – jobs up 2.1 percent – and business services, where jobs increased 2.8 percent. Government jobs were essentially flat, and retail jobs were up 1.8 percent.
Temporary jobs were up 5 percent, which seems like a lot but is a big slowdown from last year. Either employers are getting ready to hire permanent workers – which would be good – or they're getting cautious about hiring anyone – which would be bad. Another troubling sign is slower growth in manufacturing jobs, from 2 percent last year to just 1 percent now.
The housing situation, as described by home prices, is muddled. According to the Case-Shiller home price index, prices rose 7.3 percent in 2012 (including 23 percent in Phoenix). According to the FHFA Purchase-Only index, they rose 5.5 percent; according to the FHFA All-Transactions index they rose a mere 0.4 percent. And according to the National Association of Realtors they rose 12.3 percent. You'd think real estate is in short supply.
With the economy trickling along as modestly as it is, the All-Transactions index is probably closest to showing what we care about the most, the increase in the value of the average home. While the sales indexes faithfully record actual home sales, I'm pretty sure a lot of these sales have involved very un-average properties.