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Tags: Manufacturers | tax | budget | January

Experts: ‘Fiscal Cliff’ Fears Delaying Hiring, Business Expansion

Monday, 06 August 2012 09:00 AM EDT

An increasing number of manufacturers are canceling new investments and delaying new hires because they fear political paralysis will force hundreds of billions in tax increases and budget cuts in January and undermine economic growth, The New York Times reported.

At the end of this year, the Bush-era tax cuts are scheduled to expire, while automatic cuts to government spending kick in, a combination known as a "fiscal cliff" that could send the country back into recession if left untreated by Congress.

Fears lawmakers will let political differences get in the way of any effort to adjust tax and spending issues is already hurting the economy even as the cliff remains months away.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Hubbell, a maker of electrical products, has scrapped million of dollars in equipment orders and has also put off plans to upgrade factory facilities, company CEO Timothy H. Powers told The Times.

Hubbell has also put on hold plans to fill about 100 positions that would otherwise have been filled, Powers added.

“The fiscal cliff is the primary driver of uncertainty, and a person in my position is going to make a decision to postpone hiring and investments,” Powers told The Times.

“We can see it in our order patterns, and customers are delaying. We don’t have to get to the edge of the cliff before the damage is done.”

Even economists agree that fear and uncertainty can weaken an economy.

Political bickering in the United States, coupled with fears the European debt crisis may rattle nerves here, will shave about half a percentage point off growth in the second half of this year, said Vincent Reinhart, chief United States economist at Morgan Stanley.

More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason reining in spending, a figure Reinhart says will rise.

“Economists generally overstate the effects of uncertainty on spending, but in this case it does seem to be significant,” Reinhart told The Times. “It’s at the macro- and microeconomic levels.”

The fiscal cliff could siphon $500 billion out of the U.S. economy next year alone, and even the International Monetary Fund has said the government must work to avoid it.

"There are serious questions regarding the U.S. economic future particularly as a result of the potential fiscal cliff should Congress not agree on at least a temporary plan in the coming months," IMF Managing Director Christine Lagarde said recently, according to Reuters.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Monday, 06 August 2012 09:00 AM
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