The combination of automatic spending cuts and tax increases set to take effect Jan. 1, 2013, dubbed the fiscal cliff, will curb hiring by U.S. companies more than is widely known, according to a new study by Capital Economics.
Unless Congress acts before the start of next year, the fiscal cliff is widely seen as hurting the U.S. economy. The Congressional Budget Office recently predicted the fiscal cliff will send the U.S. economy into a recession and raise unemployment to about 9 percent.
Capital Economics, however, suggested Thursday that the effect on hiring may be more severe than that.
"Our econometric model suggests that non-farm payroll employment increased by around 100,000 in August, which would be disappointing after July's 163,000 gain," analyst Paul Dales of Capital Economics wrote in a report. "What's more, it is possible that in the coming months the uncertainty generated by the fiscal cliff will prompt some businesses to freeze or cancel hiring plans."
Despite promising news of increasing employment rates throughout the summer months, the report estimates that payrolls increased by around 100,000 in August. "Assuming that the labor force rebounded after falling by 150,000," the report says, "then the unemployment rate would have been stable at 9.3 [percent]."
More concerning than issues influencing specific industries, however, is "the uncertainty generated by the fiscal cliff." Anticipation of the oncoming "tax rises and spending cuts due to take place at the start of next year would be big enough to drive the economy back into recession," Dales writes, "and it may already be prompting businesses to shelve hiring plans."
Congress could still decide to postpone the proposed austerity measures, but the report doubts that any bipartisan agreement will "come until the last minute." "As the end of the year approaches," the report concludes, "the fiscal cliff could therefore have an increasingly severe impact on business hiring."