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The housing, banking and auto industries are seeing more and more gains each month, helping raise the stock market to it’s highest point in five years. Higher prices for homes and stocks make people spend more freely.

Housing, banking help boost US economy

– The U.S. economy is a study in contrasts.

The housing, banking and auto industries are surging back to health and that has helped push the stock market to a five-year peak. Higher prices for homes and stocks tend to make people feel wealthier and spend more.

Yet unemployment remains high and hiring modest. The end of a Social Security tax cut is shrinking already flat pay. Federal budget fights have put businesses and consumers on edge.

Balanced between those tailwinds and headwinds, the economy is struggling to accelerate. By the end of this year many analysts think the tailwinds will succeed in boosting growth and fueling a more robust economy in 2014.

“There is some underlying momentum,” says Paul Edelstein, U.S. economist at IHS Global Insight. “It’s not as strong as we would like, but it’s there and it’s building.”

For the first time since the recession ended 3 1/2 years ago, several key areas of the economy are simultaneously driving growth, which means the strength is more broadly based:

Housing

The nation has finally worked off the excesses of the housing bubble. Once there were too many homes for sale. Now, there are too few to meet demand. That is pushing up home prices, construction and hiring – trends that could accelerate U.S. economic growth in 2013 by a full percentage point, economists say.

Housing starts will reach 970,000 this year, according to Patrick Newport, an economist at IHS, a 24 percent jump from 2012. That’s far above the 554,000 homes started in 2009 after the housing bust, though still below the roughly 1.5 million associated with a healthy market. Construction companies will add 140,000 jobs this year, Newport forecasts.

Autos

Struggling consumers put off car purchases for years. Now, pent-up demand is being released: Sales reached a five-year high of 14.5 million last year. Analysts expect sales to reach 15.5 million this year, though still short of the recent peak of about 17 million in 2005.

Production and hiring at automakers and their suppliers are increasing as a result. The auto industry added 52,000 jobs last year, the third annual gain after a decade of declines.

Banking

The financial crisis hammered banks and choked off loans to businesses and consumers. But lending has been rebounding.

Mortgage and auto loans are rising. Commercial and industrial loans rose 2.2 percent in the July-September quarter from the same period a year earlier. Bank profits reached their highest level in six years that same quarter, according to the Federal Deposit Insurance Corp.

In the short term, the economy’s headwinds are still restraining growth. They include:

Sluggish hiring

Job gains have held steady for the past two years at about 150,000 a month. That’s only about enough to slowly reduce the unemployment rate, now at 7.8 percent.

Even in sectors that are recovering, many companies aren’t yet adding jobs. Some are even cutting, especially in financial services. Bank of America, for example, has shed about 15,000 jobs in the past year.

Few pay raises

For now, high unemployment is limiting pay. When employers have lots of job applicants to choose from, they have little incentive to give raises.

Hourly wages rose just 2.1 percent last year, only slightly above consumer inflation, which was 1.7 percent.

Consumer spending, which drives about 70 percent of the economy, can’t improve much until pay or job growth accelerates. Americans are still reluctant to run up credit card debt to pay for extra consumption.

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