Welcome to the good news/bad news U.S. economy

Reading The News

Suspension of the debt limit and a series of tough economic reports are setting the stage in DC for the midterm elections, POLITICO's Ben White says.

Welcome to the good news/bad news U.S. economy.

The good news is that Washington this week officially took its boot off the economy's throat as Congress passed a suspension of the debt limit until next year. That followed passage of a budget that removed the threat of any further shutdowns until next year as well.

The debt limit resolution did not come- as this column predicted it would not -without some significant drama. House Speaker John Boehner did the only thing he could and punted on this issue by putting a clean debt limit bill on the floor and relying on Democrats to pass it.

Boehner first attempted to cobble together a package that would appeal to Republicans but nothing worked. So he sent the matter over to the Senate, joking that he had taken the "monkey" off Republicans' backs.

(Read more: House passes debt-ceiling increase with no add-ons )

Desperate to get out of town ahead of a snowstorm, the Senate GOP leadership was content to let the upper chamber pass the debt limit bill with a simple Democratic majority, saving Republicans a difficult vote.

Sen. Ted Cruz, R-Texas, still carrying the dimming tea party flame, refused to go along, demanding a 60-vote super majority. That kicked off a desperate scramble on the floor on Wednesday by Republicans who initially directed the Senate clerk to not announce how Senators voted in order to shield those voting for cloture from immediate political attacks.

(Read more: What Congress is likely to hear from Yellen )

Ultimately, Senate Minority Leader Mitch McConnell of Kentucky and Minority Whip John Cornyn of Texas voted with the Democrats to move the bill to the floor for final passage. That brought along a handful of other Republicans allowing for a comfortable 67 votes. But it was an especially brave move by the two leaders, both of whom face significant tea party primary challengers sure to use the debt limit vote as a weapon.

But the Republican leadership in both houses clearly decided the risks of being seen as dysfunctional and in favor of economically disastrous fiscal fights far outweighed the marginal pain of some primary season attack ads.

It was the right call. The GOP has a significant opportunity to retake the Senate by picking up six seats. But it will do so only with general election candidates not viewed as reckless by a statewide audience. The party has now cleared the decks to focus on hammering President Barack Obama and the Democrats over the troubled implementation of Obamacare and the marginal economic recovery.

(Read more: California budget only seems balanced: Kashkari )

The bad news of the week was a series of soft economic reports. These could play to Republicans' advantage and bolster their argument that Obamacare and other administration policies are preventing faster economic growth.

It is too soon to say whether recent data indicate a real slow down-Fed Chair Janet Yellen for one thinks they do not-but it is at least clear that the brutal winter has taken a bite out of growth.

Retail sales in January dropped an unexpected 0.4 percent, surprising economists who expected a small increase. Industrial production also dropped 0.3 percent in January, below the consensus expectations of a 0.2 percent gain. High spending on home heating bills this winter will also act as a drag on consumers' wallets.

(Read more: What this jobs report means for midterm elections )

The only marginally good news came Friday: The University of Michigan consumer sentiment report held steady at 81.2 in early February, unchanged from the final January report. That suggests the recent market gyrations and soft jobs numbers have not yet spooked the public into serious fear of another spring economic swoon.

The next couple of months will be critical from an economic and political perspective. If job creation and economic activity regain their previous pace, GOP hopes for a big sweep this fall will dim. The trend in job creation and overall economic activity is the biggest driver of general election voting behavior.

And there are plenty of reasons to believe a stronger trend will resume. Consumer balance sheets are much better than at any time in recent years, and corporations still have huge cash piles to deploy as soon as they become more confident in final demand. They should now be more confident that Washington won't wreck everything.

And in one potentially hopeful sign, Wells Fargo, the nation's biggest home lender, has started to wade back into the "subprime" lending market, dropping its lowest acceptable FICO score to 600 from 640.

At a breakfast briefing in D.C. this week, HUD Secretary Shaun Donovan told me that others would likely follow Wells' lead, unlocking credit to borrowers who saw their scores drop during the financial crisis but who are unlikely to default on loans.

A combination of more freely flowing credit and an end to Washington-induced fiscal crisis could spark the stronger 2014 that everyone predicted at the end of last year. And that would be sweet music for Democrats hoping to hold onto the Senate in November.

-By Ben White. White is POLITICO's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet POLITICO Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.

image: © Garry Knight

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