Breakout

Economic Shock From Fiscal Cliff Will Last Over a Decade: U.S. Manufacturers

Breakout

By now you've heard the warnings about the fiscal cliff —the series of tax increases and automatic spending cuts set to take place in 2013. Most estimates calculate the combined policy changes would lead to a fiscal contraction of $500 billion in 2013.

Believe it or not, but various industry groups want you to know about it. The impact is real and already taking a toll on the economy according to the National Association of Manufacturers. In a new report, Fiscal Shock: America's Economic Crisis, NAM lays out the economic burden and just how much it will impact the current state of the economy if we go over the cliff.

"Our analysis says that it's already having an impact," says Jay Timmons, president & CEO of the NAM. "We've seen so many of our manufacturers basically stop in their tracks because they're not sure what's going to happen at the end of the year because the uncertainty is so great."

In late October, the first read on third-quarter GDP came in at 2%, up from 1.3% in Q2. Yesterday the ISM index —a key gauge of U.S. manufacturing activity-- ticked up to 51.7, marking improvement from 51.5 in September and 49.6 in August. Today, the October jobs report showed the unemployment rate ticked up to 7.9% and 171,000 payrolls were added to the workforce.

According to NAM, these improvements are moot. Their study shows the fiscal cliff will cause a 0.6% loss in GDP growth by the end of this year. Looking forward, if we actually go over the cliff, the burden could plunge the economy into worse conditions than the depths of the Great Recession of 2007 — 2009.

"If we fall off the fiscal cliff, or as I call it 'an abyss' because you have no idea what's below, what our report shows is about a 13% cumulative falloff of Gross Domestic Product between now and 2015; that's huge," says Timmons. "We're also talking about hundreds of thousands of jobs lost or not created, and we're talking obviously about a tremendous amount of investment that won't occur."

NAM foresees the impact of going over the cliff immediate and long lasting, with a recession starting in early 2013, dramatically slowed growth into 2014, 10% loss in household income, and up to 6 million jobs lost.

Here are the projected annual levels for GDP and Unemployment:

2013: GDP 0.2% / Unemployment Rate 10.2%

2014: GDP 1.0% / Unemployment Rate 11.4%

"What I think is most frightening, particularly if you look at what history teaches us about other economies that have gone through this same type of a shock like Japan thirty years ago, our report shows that it will take the better part of a decade, after 2015, to come out of the shock that we'd find ourselves in."

How much do you think the fiscal cliff is impacting the economy right now? Let us know your thoughts in the comment section below or visit our Facebook page!

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