State and local governments still face fiscal challenges. However, they are expected to hire new employees in 2013 and to spend about 1.8% more on construction this year, according to Mark Zandi, chief economist at Moody’s Analytics. "The bloodletting on the state and local government level has finally passed," says Jim Diffley, chief U.S. regional economist for IHS Global Insight. "They’re no longer subtracting from growth."

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