Thursday, January 03, 2013

Certainly Uncertain

The fiscal cliff deal reached earlier this week was supposed to remove some of the uncertainty that was making businesses hesitant to invest and keeping the economy from growing at its full potential. It appears as though it may not have done the trick after all.
Although Washington (barely) avoided going over the fiscal cliff, the Washington Post reports that the deal prolongs the uncertainty looming over businesses:
Martin Regalia, chief economist at the U.S. Chamber of Commerce, [is] worried that the deal — by locking in current marginal tax rates — will complicate congressional efforts to reduce rates and eliminate deductions as part of a broad tax reform package.

Executives have long complained, in testimony to Congress and anecdotal reports to the Federal Reserve, that policy “uncertainty” is keeping them from using more of their record profits on capital expenditures and hiring new workers. Regalia said the agreement this week did nothing to change that calculation.
The Economic Policy Uncertainty Index had already been increasing from August 2012 through November (the last month for which the index could be calculated).

Congress's kicking the can down the road again on spending and on tax and entitlement reform likely will contribute to further uncertainty. And with the regulatory onslaught of the last few years fairly certain to continue, possibly even intensify, there are plenty of reasons for businesses to be uncertain about the future and, thus, hesitant to invest in capital and labor.

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