With Budget Cuts, How Fast Will Job Cuts Hit?

The school of thought that the economy will add 150,000 to 200,00 jobs a month for the balance of the year has to have its base in the idea that federal budget cuts will not hit the broader economy at all in 2013. More specifically, this has to be founded in the notion that company managements will look months ahead and assume that gross domestic product will not be effected by the cuts, even if they do not damage their corporate prospects immediately.

It is worth looking at the Great Recession as a model of how businesses view a possible collapse of growth. While it is hard to prove directly, as GDP hit a wall, not every sector was hurt directly and at the same time. But the specter of a spreading catastrophe caused anxiety in businesses and consumers alike. All anyone had to do was watch the news to see a measure of panic set in.

There already has been some concern that the middle class believes the federal tax increases make caution about consumer spending prudent. The prudence of those same people likely will be heightened by the expectation that government cuts will seep into the economy enough to undermine whatever optimism people have gained as the economy poked its head out from an anxious cover that goes back to 2008. And with GDP barely growing in the fourth quarter, that head may have already returned to cover.

The most often cited proof that GDP will continue to grow is that consumers have begun to regain their taste for the purchase of houses and large ticket items like cars. From that point of view, cheap homes may be as much a cause of home buying as confidence is. As for cars, the surge in buying is more of a mystery. Perhaps the cars people own now are older than in the past, and there is some evidence of this. Or low-rate car loans may have pulled people to buy automobiles, which in some cases they may not be able to afford as this year goes on.

The economy, at least for most people, may not be worse next month, but that does not mean there is not increasing anxiety.

Filed under: 24/7 Wall St. Wire, Economy Tagged: featured