In the end the looming fiscal cliff didn't appear to have any severe impact on the wider economy, with the growth rates of employment, retail sales and even durable goods orders all accelerating over the final few months of last year. The ISM non-manufacturing index also rallied over the second half of last year, although the manufacturing index remains at a relatively depressed level. Manufacturing is likely to remain weak, dragged down by the poor global backdrop. We expect the domestic economy to have a rough start to this year, as the expiry of the payroll tax cut hits after-tax incomes. Nevertheless, GDP growth should accelerate as the year goes on, although uncertainty over fiscal policy could prove to be a constraint, as could a renewed euro-zone crisis.
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