Most of the worries about the "fiscal cliff" focus on what will happen in 2013 if Washington politicians fail to prevent a big batch of tax hikes and spending cuts from going into effect all at once at the start of the year. But some parts of the economy are already going over the cliff, a sign of how important future expectations are to present-day events.
Here are a few examples of companies that are struggling now on account of the dickering in Washington:
Pandora, the Internet music service, says advertisers have cut back on spending planned for the early part of 2013, while they wait to see if Washington torpedoes the economy. The company says that has cut into revenue, forcing it to lower its sales outlook.
Darden Restaurants, which operates chains such as Olive Garden and Red Lobster, recently lowered its own earnings guidance on account of discounting programs that have failed to draw spooked consumers to its restaurants. Darden blames a recent tumble in consumer confidence, which economists link to mounting worries as the fiscal cliff deadline approaches.
A recent survey by the Association of General Contractors found 32 percent of contractors have laid off workers and 67 percent have put off hiring because they're worried about taxes going up in 2013. Even larger percentages of contractors took those actions because of $6 billion in construction spending due to be cut as part of the "sequestration" scheduled to go into effect on Jan. 1, 2013.
A company named Vestis, which builds wind turbines, has laid off at least 800 U.S. workers this year, partly because of uncertainty over whether a key tax credit that supports wind energy will be renewed as part of the fiscal cliff negotiations. Without it, orders will probably plummet.
Charlie Arnold, who owns a power-washing company in Lewes, Deleware, told CNBC his business has dropped by 80 percent since October. "Whenever the news is about the government and the economy, the phone stops ringing," he said. "I attribute that directly to the 'fiscal cliff' discussion."
It's always possible troubled companies are using the fiscal cliff as an excuse for problems caused by something else. But it's also possible a lot of companies are being hurt by a cliff-related pullback in the economy and not fessing up, so as not to tip off competitors or draw the unwanted scrutiny of Wall Street analysts.
Meanwhile, there's a lot of aggregate data showing the economy is slowing in ways that are most likely related to the cliff. Economic growth has dipped from roughly 3 percent in the third quarter to just 0.5 percent in the fourth quarter, according to forecasting firm Macroeconomic Advisers. One reason for that is a big drop in business spending, with CEOs notoriously agitated about the cliff. Moody's Analytics' business-confidence index has plunged from levels over the summer, and though it has ticked back up lately, Moody's says that "a very high one-third of respondents believe the economy will weaken through spring 2013."
There's more. A key index of manufacturing activity recently fell into recessionary territory. Optimism at small businesses recently fell by the largest percentage since the National Federation of Independent Business began tracking it in 1986. S&P Capital IQ recently cut its estimate for fourth-quarter corporate earnings in half, largely because of the stark pullback in the economy. Since many economists think fundamentals such as housing, employment, wages and spending are poised for gradual improvement, the most likely cause of the recent downturn is the standoff in Washington and the dent it's making in confidence (though some business owners are also discouraged by President Barack Obama's reelection).
The cliff could begin to unnerve consumers just as the critical holiday shopping seasons hits the home stretch. Wal-Mart CEO Mike Duke said recently that before the November elections, only about 25 percent of the giant retailers "core customers" knew what the fiscal cliff was all about. Now, he says, at least 75 percent are aware of it, and about 15 percent of those shoppers say they'll cut back on holiday spending as a hedge against possible tax hikes and other consequences of going over the cliff.
Maybe they'll spend a bit more in 2013 if Washington ultimately averts the cliff. Unless the politicians create another crisis to worry about.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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