Are We Becoming Accustomed to Uncertainty?
Posted at noon on Jan. 28
While there is evidence that policy uncertainty, especially around raising the debt ceiling, can slow the economic recovery, Neil Irwin looks at recent data indicating that “Washington’s dysfunctions are less of a drag on the economy than many of us thought.”
“November and December economic data is in… If you think businesses were so petrified of the fiscal cliff that they stopped hiring, well, private sector employers added 171,000 jobs in November and 168,000 in December… If you think consumers, petrified by what their leaders in Washington were doing, held fast to their wallets, well, retail sales rose 0.4 percent in November and 0.5 percent in December.”
Meanwhile, the Financial Times warns that the $1.2 trillion in across-the-board spending cuts set to take place at the beginning of March — also known as sequestration – ”are looking increasingly likely to occur because of entrenched politics in Washington, threatening a shock to confidence in the US economy.”
“Unlike the fiscal cliff deal – which was widely anticipated – the sequester would cause a big hit to 2013 growth forecasts. According to forecasting firm Macroeconomic Advisers, the sequester would knock 0.7 percentage points off growth in 2013, taking its forecast down from 2.6 to 1.9 per cent.”