Congress has six months to prevent the U.S. economy from falling off the so-called fiscal cliff. If Congress does not act, on Jan. 1, 2013 a mix of tax hikes and $1.2 trillion in budget cuts are set to take effect, which the Congressional Budget Office says will likely throw the country back into recession.
Most economists agree that failing to act will have about a $600 billion drag on the economy in 2013. But little discussion has been given to the direct impact on jobs, particularly in the defense sector, which will suffer from half of the budget cuts. The $500 billion cut to defense spending would be phased in over 10 years with $55 billion to take effect next year.
A recent study by the National Association of Manufacturers (NAM), a lobbying and advocacy group, found that more than 1 million private sector jobs could be lost by 2014 due to fiscal constraints. The proposed job cuts would increase the national unemployment rate by 0.7 percent and decrease Gross Domestic Product by nearly 1 percent, according to NAM.
Lockheed Martin (LMT) recently warned that the majority of its 100,000-plus workforce is at risk of being laid off due to the federal budget cuts to defense; however, the defense contractor said it would ultimately reduce just a small percentage of its workforce after the cuts took effect. Other defense companies will likely follow suit in cutting back on labor costs.
The presidential election will definitely have an effect on the outcome of this fiscal cliff, but by then it may be too late. Companies planning mass layoffs must give workers a 60-day notice before final dismal.
In the accompanying interview, Dorothy Coleman, vice president of tax and domestic economic policy at NAM, joined The Daily Ticker to discuss her organization's report. She says the reaction NAM has received from members of Congress about the fiscal cliff is disconcerting.
"Members of Congress have really not heard too much about" the economic impact of the cuts and tax implications, says Coleman, something she and NAM are trying to change.
There are rumors floating around the Hill of a potential back-door deal to push the looming deadline from Jan. 1 until March 2013. But without a comprehensive solution, this move would only delay the inevitable shock to the U.S. economy.