Year-end Fiscal Cliff Already Impacting Business Decisions

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According to the latest Business Roundtable survey, CEOs have their lowest confidence in the business outlook since the recession ended, and the looming year-end fiscal cliff facing Congress when it returns in November is a key reason.  The uncertainty, coupled with slowing demand in Asia and Europe, is forcing companies to postpone investment decisions and hiring.  The main cause is the so-called fiscal cliff — Washington's self-imposed year-end deadline to agree on a plan to shrink the federal budget or trigger $109 billion in spending cuts and significantly higher taxes on January 2, 2013.  Although the sharpest pain would be felt by the defense and health care industries, the scheduled tax increases will reduce consumer spending on everything from apples to zippers.  Because of the cliff as well as other negative factors, some 34 percent of CEOs plan to reduce jobs in the U.S. over the next six months, up from 20 percent in the previous quarter, and the percentage of CEOs that expect to reduce U.S. employment over the next six months is now higher than the percentage that expects to increase employment.  While some defense companies have already announced layoffs amid tightened defense spending, many will have to decide by November 1 whether to issue WARN notices.  The Department of Labor has sought to discourage those notices, providing reassurances that they are not required.  However, the WARN Act is enforced in the federal courts by private rights of action, and some courts could hold a different view than DOL.  Many political observers believe Congress will act quickly upon their return to defer the spending cuts and tax increases but, between now and then, the uncertainty will continue to dampen the economic outlook.