Recently we’ve come across a few stories
making the case that the looming fiscal cliff is already having an
impact on the US economy, as companies are reluctant to invest given the
possibility of severe fiscal contraction at the start of next year.
We began writing about the fiscal cliff last November (before it had the name, and we certainly weren’t the first). The outcome is still undetermined — and all indications are that it won’t be decided until after the election. It therefore seems reasonable to think that companies are pricing in some probability of a failure by the two parties to arrive at a deal before the end of 2012. Maybe they are.
But this “uncertainty” channel is always difficult to measure, as by necessity it relies both on anecdotal evidence, mainly the word of business executives who have an obvious interest in the outcome of whatever happens to be uncertain. This strikes us as similar to arguments that regulatory uncertainty makes it harder for companies to hire, for which there is little if any evidence.
In other words, worries about the fiscal cliff probably do have some impact, especially on the most vulnerable sectors, but this impact is difficult to quantify with any precision and to untangle from other factors that also influence companies. Obviously it doesn’t help, but we don’t really know how much it hurts.
Anyways, adding to the sceptical case is a short note from Citi analysts, who looked at the planned spending decisions of 700 nonfinancial public companies and found that such retrenchment has yet to begin.
Read more: http://ftalphaville.ft.com/blog/2012/08/16/1122421/uncertain-uncertainty-effects-and-the-fiscal-cliff/
We began writing about the fiscal cliff last November (before it had the name, and we certainly weren’t the first). The outcome is still undetermined — and all indications are that it won’t be decided until after the election. It therefore seems reasonable to think that companies are pricing in some probability of a failure by the two parties to arrive at a deal before the end of 2012. Maybe they are.
But this “uncertainty” channel is always difficult to measure, as by necessity it relies both on anecdotal evidence, mainly the word of business executives who have an obvious interest in the outcome of whatever happens to be uncertain. This strikes us as similar to arguments that regulatory uncertainty makes it harder for companies to hire, for which there is little if any evidence.
In other words, worries about the fiscal cliff probably do have some impact, especially on the most vulnerable sectors, but this impact is difficult to quantify with any precision and to untangle from other factors that also influence companies. Obviously it doesn’t help, but we don’t really know how much it hurts.
Anyways, adding to the sceptical case is a short note from Citi analysts, who looked at the planned spending decisions of 700 nonfinancial public companies and found that such retrenchment has yet to begin.
Read more: http://ftalphaville.ft.com/blog/2012/08/16/1122421/uncertain-uncertainty-effects-and-the-fiscal-cliff/
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