9/30/2013 3:45 PM ET|
Will budget fight shut down the recovery?
With business and consumer confidence falling, economists worry that even the possibility of a government shutdown or debt default will hurt the economy.
Washington's budget standoff is spooking businesses and consumers, threatening the recovery even if lawmakers avoid a government shutdown or a potentially catastrophic default on the nation's debt.
The fights have pushed up measures of uncertainty and knocked down gauges of confidence. One barometer of risk tied to U.S. government debt has surged. Despite few signs of distress in the stock market, economists warn that months of rolling brinkmanship will cloud the outlook even without a government default.
"American businesses have this mentality where no one wants to make a decision because you have no idea what's lurking around the corner," said Jeremy Flack, president of Flack Steel, a Cleveland steel distributor. "Government needs to make us feel more solid about the state of affairs, and they're doing the exact opposite."
The congressional deadlock comes as the economy tries to gain traction more than four years after the recession ended. Consumers are slowly improving household finances. Businesses are boosting hiring at a modest pace. The housing market is regaining lost ground, and while the Dow Jones Industrial Average ($INDU) and S&P 500 ($INX) each fell more than 1% last week, the indexes aren't far off their record highs. Most investors say they are more concerned with near-term decisions about the Federal Reserve's bond-buying program than about news from Capitol Hill.
But confidence among U.S. consumers fell to a five-month low this month, according to a gauge by the University of Michigan released Friday. Business confidence has dipped as well. A survey by the Business Roundtable, a trade group for big-company CEOs, found half of top executives said the budget fights were crimping their hiring plans.
"We want leaders to lead and compromises to be found, because not doing that would have a serious impact on the economic growth of this country," the group's chairman, Boeing Co. CEO Jim McNerney, said earlier this month.
On Friday, 236 business organizations -- including the Business Roundtable and U.S. Chamber of Commerce -- wrote to lawmakers urging them to keep the government open, raise the federal borrowing limit and pivot their attention to longer-run budget concerns such as entitlement spending.
Fiscal warfare can harm the economy directly and indirectly. Cutting government services -- either temporarily in a shutdown, or permanently through spending reductions -- can disrupt a broad range of commerce and hit American workers and businesses tied to the public sector. Indirectly, the annoyance from disruptions alongside the threat of damage to markets and the economy can dent confidence and weigh on corporate planning.
"It's an anxious time," said Christopher Romani, who founded Integrity Management Consulting, with his wife, Mary Beth Romani, in 2006. "Not as much effective business is getting done because people are legitimately distracted by what might happen." The McLean, Va., firm, which has about 100 employees, has projects with agencies throughout the federal government.
Romani, who is making contingency plans for a shutdown, said the anxiety within his company and among its government clients is whittling productivity. "We're looking at this a week at a time," he said.
Even a short government shutdown would harm the economy. Economists at Morgan Stanley estimate that every week of a shutdown would shave 0.15 percentage point from the quarterly pace of gross domestic product. (GDP grew at an annualized 2.5% pace in the second quarter, according to the latest government estimate.) That doesn't account for indirect damage to markets or confidence.
The stock market's relative calm in recent weeks may be masking potential damage ahead. Investors, who tend to focus on shorter-term concerns, often don't react until the last minute. That happened two years ago, when lawmakers went down to the wire on pacts in the spring and summer of 2011 to avoid a government shutdown and a debt default. Another accord, crafted in the closing hours of 2012, averted the budget cuts and tax changes known as the fiscal cliff.
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What recovery, the false economy that is being propped up by the billions the fed are printing?
LOL ........... DERAILING THE EMPERORS NEW CLOTHES!
There never was a recovery, at least not for most Americans.
The threat of a shutdown won't be the reason our economy continues to struggle, the biggest reason for our anemic recovery is the combination of Obama, Liberals and most especially, Obamacare.
Exactly how would one tell if this "recovery" had been derailed? The only barometer that says it is a recovery is the stock market so "big whoop". Let it derail. From where I sit there will be no difference.
I'd rather see the country get back to reality and get away from these manufactured bubbles that give the appearance of success but inevitably pop.
In the meantime, all the big boys that have eyes and ears in the Congressional meeting rooms will be trading like bandits. This situation is great for those guys. They love volatility and they make money on the way up and down. All this theater is just a chance to churn the market.
Any drops during the shutdown will be regained immediately when they inevitably reach an agreement. There's simply too much money in the system with nowhere else to go!
Uhhh, what budget? What recovery? We haven't had a budget in 5 years. I HAVE however seen a bunch of spending bills passed.
I guess the "plan" is to borrow our way out of debt. Brilliant!
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