The bottom line is that it is now time to get to work, both in Washington and in our businesses. Washington has to get to work on the fiscal cliff and tax changes. There are many predictions from various sources about the economic impact of the so-called fiscal cliff, but they all have one thing in common—this will not be good for America. The lame duck Congress needs to act decisively on this issue to minimize the drag it will produce on the economy.
It is too early to tell what the new Congress will actually do with these issues. However, we do know what the law of the land currently is and what the likely impact will be on the economy. Essentially, taxes are going up on all working Americans in 2013, and, proportionate to income, the middle-class will be the hardest hit.
President Obama temporarily cut the FICA tax by 2 percent in 2010. The 2 percent comes back on starting in January 2013. That may not sound like much, but that 2 percent equates to $1,001 for the year for the average income earner. There are about 110 million people working in the United States. The roll back was a sizeable benefit; the return is going to put a drag on consumer spending.
The Medicare tax rate is going up by 0.9 percent. That equates to another $450 in increased taxes on the average wage earner in 2013. The result is more downward pressure on consumer spending in 2013. Factor in higher costs for food, energy, and rent in the coming year, and we are faced with a consumer-led recession beginning in late 2013 and extending into 2014.
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Business leaders need to plan and work with the realization that the United States will see the recovery hold together until about the middle of 2013 before we move more noticeably to the backside of the business cycle. Our leading indicator input is unified in this projection. Be ready to deliver the goods in the first half of 2013, as there is likely to be a short rebound in business-to-business activity.
Industry news
We expect the mining and metal industries will provide some opportunities in 2013. The near-term has been negatively impacted by the uncertainties presented above. Quarterly non-defense capital goods new orders fell to 7.6 percent below the year-ago level as businesses stockpile cash. As a result, mining and metalworking machinery new orders are slowing or even faltering; production has begun to moderate; and inventory levels rose to 19.9 percent above last year. However, we are projecting that the end of the U.S. political season and the effects of stimulative monetary programs across the globe will help boost growth in early 2013. These results will encourage more investment in machinery and equipment, increase mining activity, and help businesses that sell to this segment of the economy.
A similar improvement is expected in other areas of capital spending as leaders recognize that the new year did not bring an end to business opportunities. We expect the upside opportunities to last until about mid-2013. The improvement is partly rooted in China. Leading indicators are suggesting that the slowdown may be nearing an end, and a slightly higher growth rate will occur in early 2013. A recently announced stimulus plan (approximately $150 billion) will also begin taking effect early next year and helping reinvigorate lagging demand.
>> Alan Beaulieu, [email protected], is President of the Institute for Trends Research (ITR). The ITR blog can be found at www.itreconomics.com/blog.
