The US began 2013 with $259 billion in tax increases resulting from fiscal cliff negotiations; these have been joined in recent weeks by $85 billion in sequestration spending cuts. This powerful economic headwind from Washington is being offset, as we expected, by a recovery in the housing and automotive industries (see adjacent ISI Homebuilders Sales chart), two sectors of the economy that until this year have been mostly absent from the economic recovery. The delicate balance between fiscal drag out of Washington and the acceleration in two critical areas of the economy is a "Goldilocks" level of economic growth - fast enough to avoid recession, yet not so fast that the Fed is likely to curtail QE purchases in the near future.

Furthermore, although the net result is an economy still mired in an anemic 1.5 - 2.5% growth, the sources of that growth provide a much healthier and more stable foundation for the US economy, in our view.

A combination of mortgage refinancing, defaults, and the passage of time to pay off car loans has reduced consumer debt payments as a percent of take-home pay to the lowest level in the past 30 years. With consumer debt burdens reduced, debt-dependent sectors of the US economy (especially housing and automobiles) are recovering. Thus, while fiscal drag may result in another year of subpar economic growth, 2013 will be the first year in which growth shifts from an unsustainable dependence upon government deficit spending to a more healthy reliance on a recovering private sector.

David Fuller's view The US consumer is gradually recovering, helped mainly by necessary deleveraging, QE which has pushed up share prices and now steadied the housing market, while keeping interest rates exceptionally low.

Historically, it takes from five to seven years for an economy to recover from a credit crisis recession, assuming favourable monetary conditions as we are seeing in the USA and a number of other countries. Currently, the US is four months into the fifth year of this gradual process. It is hampered somewhat by an economically dysfunctional government but more importantly, helped by competitive energy prices thanks to shale gas and oil fracking.