The “Fiscal Cliff” dilemma contained two elements that were designed to concentrate the minds of US lawmakers. These were a series of automatic tax increases and swinging public sector expenditure cuts which, had they passed into law unaltered, had the potential to tip the US economy into recession and with it further stymie the global economic recovery.
In the end, an agreement was come to over the tax situation, but the issue of mandatory cuts was kicked down the road for a couple of months from the original New Year’s Eve deadline. Republican and Democratic politicians were unable to find common ground over the cuts, known as the Sequester, and President Obama signed them into law earlier this month. The President was scathing about the automatic cuts, describing them as “… dumb, arbitrary cuts to things that businesses depend on and workers depend on”. He estimated that the cuts could cost 750 000 jobs and reduce the nation’s GDP by 0.5%.
What People Really Think
According to a keenly watched consumer confidence survey, the Sequester has had a negative effect on consumer sentiment. The survey, organised by the Conference Board, saw sentiment weaken by 8.3 points to a level of 59.7 for March. Since something like 70% of American output is consumed domestically, consumer sentiment is a key index.
Another indicator, sale of new homes, fell in February to a seasonally adjusted 411000 homes, a decline of 4.6% over the January figure which was the best level of new home sales seen for five years. However, better news was also available in the shape of an increase in sales of durable goods which enjoyed a hike of 5.7% in February, according to the Commerce Department. This was the best increase seen for five months.