|By Patrice Hill, The Washington Times|
Businesses frequently cite uncertainty about what will happen with
Activity at the nation's factories — already depressed by the recession in
Job growth trailed off from robust levels of more than 200,000 a month earlier this year as employers shied away from making permanent staffing decisions in a fog of political uncertainty.
"The primary catalyst for the slowdown in the economy has been dysfunctional fiscal policy," said
"The closer the politicians take the economy to the edge of the cliff, the greater will be the associated anxiety and uncertainty that fiscal policy will generate an economic calamity, and the more damage that will be done," he said.
The decline in business investment — a key source of strength driving the economic recovery since 2009 — emerged dramatically last month when orders for big-ticket goods plummeted by 13 percent. Analysts said business investment in equipment likely declined during the summer quarter for the first time in the three-year recovery.
"As anxiety and uncertainty about the fiscal cliff have increased, businesses have made the prudent decision to delay investment spending decisions,"
Just as growth has slowed precipitously, hiring also hit a wall, with job growth falling from 225,000 a month on average in the first quarter to 145,000 in the summer quarter. "The labor market has clearly lost traction,"
Delaying hiring, investment
While business groups have complained loudly about the dangers of the fiscal cliff for months, many have told their members privately that
"There's no sense in hiring right now, and there's no point in investing right now," said
Uncertainty about the outcome of the close presidential election is adding to business hesitation. Riding on the election is the fate of
Even for businesses that aren't inclined to wait, the hoopla surrounding the fiscal deadline — including much-trumpeted predictions that it will throw the U.S. economy into a deep recession — have led many to postpone plans until the outlook is clearer.
U.S. consumers, in contrast, seem less concerned about the year-end deadline and have even staged a minor spending revival in recent weeks. Surveys show that consumers are not paying attention to the deadline, although consternation about political gridlock overall registers with the rock-bottom approval ratings that voters give to
Punting the problem
But all the fretting by businesses may be for naught if, as many analysts expect, the deadline is punted into next year or is otherwise softened by a budget agreement that phases in austerity measures over a period of years. The latter is the scenario that economists say would produce the most favorable result for the economy and the budget deficit.
"The most likely scenario is that policymakers will come together after the elections and pass a continuation of existing tax policy and spending levels. This continuing resolution would essentially result in
While putting off the deadline would prolong the uncertainty and anxiety for a while longer, it would not do the kind of major damage to the economy that has been trumpeted in headlines this year, striking fear in the hearts of some businessmen, he said.
"It would place a drag on economic growth and weigh on financial markets" as businesses and investors await a longer-term solution from
It wouldn't be the first time that widespread dread in anticipation of a much-publicized event proved to have a more powerful effect on the economy than the event itself.
An economic catastrophe from the so-called
Pressure on the Hill
Setting up such pressure-ridden deadlines has become a hallowed tradition in
Despite all the bombast and rhetoric surrounding the fiscal deadline, business professionals familiar with the ways of
Business clients, in fact, were more concerned about the effect on the economy this year from worries about the fiscal standoff, with 60 percent saying "uncertainties in advance of the fiscal cliff outcome" already are depressing growth, said
"We assume that a deal is struck before year-end that extends most features of the current fiscal system on the promise of some new mechanism to force a decision later next year," he said. "The exact features of the deal depend on who will be in the
Hurting in the run-up
But the damage to the economy in anticipation of the much-ballyhooed deadline can still be substantial, according to
"The effects on U.S. economic growth from political uncertainty were well documented during last year's debt-ceiling debate," he said. Consumer confidence took an unprecedented hit, plummeting by half in response to the political turmoil and a first-ever downgrade of the U.S. credit rating by Standard & Poor's Corp. in August.
Businesses slowed their purchasing and hiring decisions in a major way, just like they appear to be doing this year.
Said Mr. Silvia, "We believe a similar effect is possible on both consumer and business confidence in the fourth quarter of this year if policymakers wrangle over how to continue the bulk of existing policies for a prolonged period. A short-term patch would then result in a second wave of reduced business and consumer confidence as the new
"December has the highest monthly level of discretionary consumer spending in the U.S., and the contentious debate over the fiscal cliff in that month is likely to damage consumer confidence," he said. Moreover, the stock market is likely to get drawn into the maelstrom, as
"It is likely that resolution happens as a result of the stock market declining significantly, thus investors need to prepare for a sell-off," he said.
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