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crisis—continue to rebound and contribute to growth, as real (inflationadjusted)
residential investment rose more than 6 percent over the four
quarters of the year, while motor vehicle production rose 9 percent. And in
October 2013, the amount of crude oil produced domestically exceeded the
amount imported for the first time since 1995, providing further evidence
of a domestic energy boom that is supporting jobs and helping to sustain a
markedly narrower trade deficit relative to the years leading up to the crisis
(Figure 1-2).
The progress seen in 2013 is notable in part because the steep decline
in the Federal budget deficit during the year was a major headwind on macroeconomic
performance. Figure 1-3 shows the largest four-year reductions
in the Federal budget deficit since the demobilization from World War II.
Since the end of fiscal year 2009, the deficit has fallen by 5.7 percentage
points of GDP, with nearly half of that reduction—2.7 percentage points
of GDP—coming in FY 2013 alone. Some of the deficit reduction in 2013
was a natural consequence of the gradual improvement in the economy,
and a large portion of it was due to policy decisions, like the spending caps
agreed to in the Budget Control Act of 2011, the increase in tax rates for
top earners at the beginning of 2013, as well as the end of the temporary
payroll tax holiday. The fiscal contraction would, of course, have been much
worse were it not for the permanent extension of tax cuts for middle-income
households. While these factors reflected a balanced approach to making
progress toward fiscal sustainability, they were unnecessarily compounded
with the onset of budget sequestration in March, which the Congressional
Budget Office (CBO 2013a) estimated slowed real GDP growth over the four
quarters of the year by 0.6 percentage point and reduced employment by the
equivalent of roughly 750,000 full-time jobs.
On top of the fiscal headwinds, the economy was also forced to contend
with a disruptive government shutdown for 16 days in October, as well
as dangerous brinksmanship over raising the Federal debt limit. The shutdown
cost the government more than $2 billion in lost productivity alone as
Federal workers were furloughed for a combined 6.6 million days. In addition,
families were unable to travel to national parks, oil and gas drilling permits
were delayed, Small Business Administration loans were put on hold,
and licenses to export high-tech products could not be granted, to name just
a few effects. Consumer sentiment, as measured by the Reuters/University
of Michigan Index, fell to its lowest point of the year in October, and fourthquarter
GDP growth was constrained by a large negative contribution from
the Federal sector. Moreover, because Congress was slow to act to raise the
debt ceiling, several large investment management firms announced that
they had divested from Treasury securities maturing around the time of the
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