JACKI LYDEN, HOST:
Before the fiscal cliff took over the news, we were talking about other, more uplifting economic stories this year.
(SOUNDBITE OF NEWS SHOWS)
DAVID GREENE: The U.S. housing market is finally showing more signs of recovery.
UNIDENTIFIED MAN #1: We've seen some improvement in the job market...
UNIDENTIFIED MAN #2: Increasingly, the evidence suggests that the United States has come out of the financial crisis of 2008 in better shape than its peers.
LYDEN: Justin Wolfers, professor of economics and public policy at the University of Michigan, takes us back to 2012's major economic stories. And he says that while the recovery has been disappointingly slow, things are picking up somewhat.
JUSTIN WOLFERS: The unemployment rate right now is still seven and three-quarter percent. This is four years after the recession began. Usually, you would see the economy as having rebounded all the way back by now. The economy is growing at a rate of 'round about 2 percent. That's roughly its trend right of growth. So what that means is we're in a hole. The hole is not getting any deeper, but we're not really filling it in very quickly either.
LYDEN: Talk about what was really on everyone's lips at the beginning of the year, and that was the number of homes and mortgages under water. Has that fan been reversed anywhere in the country or stabilized?
WOLFERS: That's certainly stabilized and starting to turn around. More generally, one of the really hopeful stories of 2012 has been it looks like housing has not only hit the bottom, but it's starting to recover. House prices are starting to rise. We're starting to see a little bit more construction than we were seeing before.
And if you look to the recovery going forward - I'm going to give you two words: houses and cars. Both require a lot of people to make them, and we pretty much stopped buying them for the past few years. And it looks like we're going to start making both again over the next few years, and that could be a big part of the recovery.
LYDEN: There's another impact looming, and that, of course, is the fiscal cliff. Now, what impact has deadlock over negotiations had so far on the economy?
WOLFERS: We've already gone over the fiscal cliff. I understand that it's not the first of January yet, and so the tax rises haven't hit and the spending cuts haven't hit. But it's already started to affect quite likely consumer confidence, businesses' willingness to invest. So this is just a man-made disaster. Unlike the rest of our economic worries, this is the direct result of policymakers sitting down and either making or not making policy.
And I think this magic number of January 1st is all wrong. I think the fiscal cliff has been hurting us for the past few months. And the general sense as well that the U.S. is sending out to the broader world, which is that our Congress is not willing to actively manage our economy in a sensible and coherent way, has probably been hurting us for a few years.
LYDEN: Hum. And as you look ahead, do you have any predictions about economically what will happen if this drags on?
WOLFERS: Well, the fiscal cliff will get resolved. The implications of doing nothing are simply too great. And so I'm confident that Washington will bumble through. How long it takes is a different question. I think we see an enormous amount of interest from regular people right now in what's going on with the fiscal cliff. And coincident with that, we see consumer confidence falling.
So if this drags on through January and February, I think you really are going to see businesses pulling back on investment, consumers tightening their purse strings. And partly, that's because they're looking forward and they're worried about things. And partly because, literally, there'll be more dollars being kept out of their weekly paychecks. And as a result, they're going to be less likely to be spending.
But the question is just how bumbling the policy response will be and therefore whether yet again we're going to have Congress try and choke the recovery off.
LYDEN: That's Justin Wolfers. He's professor of economics and public policy at the University of Michigan in Ann Arbor. He spoke to us from his home. Justin Wolfers, thank you very, very much.
WOLFERS: My pleasure. Thank you. Transcript provided by NPR, Copyright NPR.