A survey by the National Association of Business Economics of its members conducted in late September shows business profit margins growing in the third quarter. Also, 70 percent of the surveyed economists predicted GDP growth of 2 to 3 percent.
PricewaterhouseCoopers’ Q3 2013 Manufacturing Barometer also indicated optimism about the economy, with 60 percent of the respondents expressing optimism about the domestic outlook; 78 percent believed the U.S. economy grew in the year’s third quarter. In fact, U.S. factory activity did expand in September at the fastest pace in two and half years, as reported by the Institute for Supply Management. The Institute’s index rose to 56.2 that month, the highest since April 2011.
Of course, all of these prognostications were made before the 16-day government shutdown that began on October 1. As we went to press on this issue, Congress ended that shutdown and averted a major financial crisis by raising the debt ceiling through an 11th hour deal. However, as pointed out by economic analysts, this was just a short-term fix until the next budget showdown on Jan. 15, 2014.
Needless to say, all this uncertainty could have a dampening effect on business and consumer confidence and negatively impact year-end and first quarter 2014 economic growth, damaging what’s been called a less-than-robust economic recovery. Unfortunately, many economists expect Congress to once again engage in last-minute deal-making as the next deadline looms. If, at that time, a longer-term solution is not found, this could negatively affect economic activity for all of 2014 — a very dire consequence.
As reported in The New York Times, the 16-day shutdown has already trimmed about 0.3 percentage points from fourth quarter growth, or about $12 billion, as estimated by the St. Louis-based forecasting firm Macroeconomic Advisers. Standard & Poor’s was more pessimistic, estimating that the shutdown cut about 0.6 percent off inflation-adjusted GDP, equivalent to $24 billion. And when all the calculations are made, analysts say annual growth will now register just 2 percent or less — not the 2 to 3 percent previously predicted.
If the U.S. economy is to continue to grow in more than fits and starts, Congress needs to come up with a longer-term solution to the budget and debt-ceiling crises. Only then will it instill in companies the confidence to invest in their facilities and work forces in order to grow and expand.