Handicapping the 2014 economy

Reuters - 2014 starting off strong with economic news reflecting strength heading into the New Year.

U.S. factory activity held near a 2-1/2 year high in December, and the number of Americans filing new jobless claims fell for the second week in a row.

And yet another report showed construction spending was lifted to its highest level since December 2008 by a jump in construction projects.

All good things for the New Year, says PNC's senior macroeconomist Gus Faucher:

SOUNDBITE: GUS FAUCHER, SENIOR MACROECONOMIST, PNC (ENGLISH) SAYING:

"We are going to have less drag from the federal government. We are not going to have the big federal tax increases that we had in 2013. There will be spending cuts, but they will be smaller than they were last year so that will be a positive, We'll also have continued gains in consumer spending. Jobs are growing, incomes are growing, so consumers are spending a little bit more, and then, we will have better growth overseas"

And while there will be a new Fed chairman in Janet Yellen, Fed policy will likely stay on the same course, tapering back its bond buying through the year and keeping short term rates low.

But what goes on in terms of fiscal policy is less predictable:

SOUNDBITE: GUS FAUCHER, SENIOR MACROECONOMIST, PNC (ENGLISH) SAYING:

"If we see big spending cuts, I think that could be a drag on growth in 2014 like it was in 2013. And then Congress also needs to increase the debt limit, so you know I mean if Congress decides that they are going to play games with the debt limit in February, I think that could be a big problem for the U.S. economy. So I think fiscal policy is going to remain a wild card like it has been over the past few years."

The government could run out of borrowing authority as soon as February if lawmakers don't raise the debt limit.