by Calculated Risk on 3/11/2013 08:17:00 PM

Here is Nomura's current US outlook:

Activity: In the 3 1/2 years since the Great Recession ended, real GDP has grown at a lackluster 2.1% pace and is tracking close to that pace in Q1 2013.

Lower-income households are in the process of ratcheting down spending in response to a higher tax burden, but aggregate demand is being held up by higher-income spenders reacting to rising wealth from equities and real estate. Fiscal policy remains a source of uncertainty for the outlook, but risks of a policy misstep have diminished. Our forecast for the US economy assumes that half of the 1 March spending cuts will be implemented this year, but it is looking more likely that the full sequester will remain in place. If so, our assumptions for government spending will need to be revisited. Congress is working to complete a continuing resolution (CR) before the 22 March Easter holiday break. The CR is expected to fund the federal government through the end of this fiscal year (30 September).

Providing a buffer against fiscal headwinds, the housing recovery continues to deepen. Home price increases are providing support for household confidence and we expect the wealth effect from real estate to help support aggregate demand.

Inflation: Our forecast for consumer price inflation to remain below 2% for the forecast horizon reflects the effects of a substantial output gap that has emerged from three years of sub-par growth in the economy, and limited risks from commodity prices.

Policy: We expect the FOMC to maintain its current longer-term asset purchase program through Q3 2013, and then begin to taper purchases as the recovery strengthens and outlook improves convincingly. Upcoming negotiations in Washington over the reprogramming of spending cuts and the budget are likely to prove very contentious.

Risks: Fiscal policy missteps and slower global growth remain the dominant risks to the outlook.

Nomura is projecting real GDP to increase 1.9% in 2013 (another sluggish year), and for the unemployment rate to fall to 7.5% in Q4. For housing starts, Nomura is forecasting an increase to 1.02 million starts from 780 thousand in 2012 (a 30% increase).

Tuesday economic releases:
• At 7:30 AM ET, NFIB Small Business Optimism Index for February. The consensus is for an increase to 90.1 from 88.9 in January.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. The number of job openings has generally been trending up, but openings were only up 2% year-over-year in December.