Say what you will about Bernanke, but if this whole central bank gig doesn’t work out, he might have a future in writing catch phrases. Ever since he used the phrase “fiscal cliff” to describe the combination of tax hikes and spending cuts that will automatically kick in unless Congress acts by the end of the year, it’s rapidly become a household term (at least in our households). Judging by Google search traffic for the term, we’re not alone:
It also happens to be the perfect encapsulation of the collective fear for the future of the US economy – that we’re careening toward disaster.
At least, that’s been the dominant narrative over the past few months. But talk, as they say, is cheap. When it comes to actual behavior, we’re just not seeing as much as we expected of investors or companies bracing for impact. Stocks are at or near 2012 highs, and hiring trends have been positive, if tepid. Via Bloomberg:
A pullback in business investment had fanned concerns that companies would begin to pare hiring in anticipation of $600 billion in government spending cuts and tax increases at the start of 2013. The Congressional Budget Office has warned the economy will fall into recession if Congress allows the fiscal squeeze to go ahead.
The jobs numbers suggest the economy is expanding at a “trend-like pace” of around 2 percent, Kasman said. That would be in line with the 2.2 percent average quarterly growth rate of gross domestic product since the 18-month recession ended in June 2009.
Obviously, going over the fiscal cliff is not a certainty – Congress could always step up and pass a “grand bargain” to avoid the automatic cuts. It’s just that, well, given the dysfunction in DC over the last few years, we’re surprised that any Americans are willing to bank on an 11th hour compromise. Beyond the hiring figures, there may be some indication that businesses are concerned:
“Uncertainty around the fiscal cliff has already caused firms to postpone capital-goods orders,” Joshua Dennerlein, U.S. economist for Bank of America Corp. in New York, said in a note after the release of the jobs numbers.
Shipments of nondefense capital equipment excluding airplanes, a proxy for business investment, fell 0.9 percent in August after decreasing 1.1 percent in July, according to Commerce Department figures.
But overall, it looks like the fiscal cliff is not yet being treated as a likely outcome. Whether that will change once zero hour draws near remains to be seen.