NYT: Fear of ‘Fiscal Cliff’ Has Industry Pulling Back

The New York Times reports today, “A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months. Executives at companies making everything from electrical components and power systems to automotive parts say the fiscal stalemate is prompting them to pull back now, rather than wait for a possible resolution to the deadlock on Capitol Hill.”

The Times notes, “[M]ore diversified companies like Hubbell Inc. in Shelton, Conn., have begun to hunker down as well. Hubbell, a maker of electrical products, has canceled several million dollars’ worth of equipment orders and delayed long-planned factory upgrades in the last few months, said Timothy H. Powers, the company’s chief executive. It has also held off hiring workers for about 100 positions that would otherwise have been filled, he said. ‘The fiscal cliff is the primary driver of uncertainty, and a person in my position is going to make a decision to postpone hiring and investments,’ Mr. Powers said. ‘We can see it in our order patterns, and customers are delaying. We don’t have to get to the edge of the cliff before the damage is done.’ The worries come amid broader fears that the economy is losing momentum — the annual rate of economic growth in the second quarter fell to 1.5 percent from 2 percent in the first quarter, and 4.1 percent in the last quarter of 2011. On Thursday, the Commerce Department reported that factory orders unexpectedly fell 0.5 percent in June from the previous month, while data on the labor market released Friday showed job creation still falling short of the level needed to bring down the unemployment rate.”

Further, “More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason for their spending restraint , [Vincent Reinhart, chief United States economist at Morgan Stanley] said. He expects that portion to rise when the poll is repeated this month. . . . With many Fortune 500 companies now setting budgets and planning for 2013, chief executives say they cannot afford to hope for the best. Wall Street is also paying more attention: over the last few weeks, chief executives of companies like Honeywell, U.P.S. and Eaton all cited the uncertainty as a threat to earnings in the second half of 2012. ‘We’re in economic purgatory,’ said Alexander M. Cutler, the chief executive of Eaton, a big Ohio maker of industrial equipment like drive trains and electrical and hydraulic systems. ‘In the nondefense, nongovernment sectors, that’s where the caution is creeping in. We’re seeing it when we talk to dealers, distributors and users.’”

As noted in various prior ARRA News "Today in Washington, D.C." articles, we have noted that Senate Republicans have been pushing to alleviate this uncertainty by extending all the current tax rates for another year. Senate Democrats had an opportunity to do that, but they voted it down, preferring to impose tax hikes in January on many job creators instead.

The U.S House has passed numerous to create jobs, bills to cut bureaucracy that is stymieing businesses who hire people, bills to cut spending and reform various government agencies' or to stop their negative actions. However, Senate Leader Harry Reid has not been willing to take up these bills in the Senate. The stalemate to recover is in fact one person; Harry Reid" urged on by his puppet master President Obama and his White House minions.

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