More Fiscal Cliff Concern

The Manufacturers Alliance for Productivity and Innovation (MAPI) issued the results of a new survey that confirm what most economists and business people already suspect. In its new outlook about the prospects of its members, MAPI researchers concluded:

Manufacturers would be negatively impacted if Congress fails to prevent the government from going over the fiscal cliff; out of related concerns, many companies have delayed investment and/or hiring.

There is a school of thought that many businesses already have delayed investment and hiring. Whether those decisions were made last month or will be made next month, the prospects for job growth in the fourth quarter have become close to nil.

Hope continues, in some circles, that the economy can add 150,000 jobs in each of October, November and December. Depending on what happens to the size of the national workforce, unemployment may tick down to 7.7% or 7.6%. The chances that will happen have become longer and longer. The Wall Street Journal has just released it own poll of economists that showed:

On average, the 48 respondents, not all of whom answer every question, expect the jobless rate will still be at 7.8% in June of next year — matching the September figure released last week. The reason for the stagnation in the job market is expectations for lackluster economic growth during the rest of 2012 and into 2013. Through the first half of next year, the average forecast is for growth in gross domestic product below 2% at a seasonally adjusted annual rate.

One interpretation of the WSJ data is that it would take very little to tip the economy back into recession. The effects of the fiscal cliff could be worse than the WSJ or the MAPI projections say. Another perspective on a likely lack of recovery is the Congressional Budget Office prediction that the fiscal cliff could cause gross domestic product contraction early in 2013.

Taken all together, there are almost no groups of economists, associations or independent government entities that see anything other than tiny growth or a GDP retreat. That was not the case a quarter ago, but the reality of an economy in disintegration has finally set in.

Douglas A. McIntyre