Fiscal Shock: America’s Economic Crisis

National Manufacturers Association

The US economy is bracing for a $500 billion hit on January 1, 2013. The double whammy of across-the-board cuts in spending and federal tax increases will be large and sudden. This report reveals the devastating economic consequences of not addressing the fiscal cliff before it happens. The report concludes that, absent legislative action:

Large spending cuts and large tax increases will hit the economy at the same time, causing a total fiscal contraction of $500 billion, or about 3.2% of GDP.

Washington’s failure to address the fiscal cliff is already having an impact, cutting 0.6 percentage points from GDP growth for 2012.

The economy will almost certainly experience a recession in 2013, and significantly slower growth through 2014.

From 2012 to 2015, the economy will lose 12.8% of the average annual real GDP it could have attained with moderate growth, sapping critical resources from all economic sectors.

Job losses will be dramatic. By 2014, the fiscal contraction will result in almost 6 million jobs lost, and the unemployment could top 11%.

Households will take a big hit. Real personal disposable income will drop almost 10% by 2015.

Manufacturers of consumer goods and defense contractors likely will see large and durable contractions in their industries.

It will take most of the decade for economic activity and employment levels to recover from the fiscal shock. Another recession could deal a substantial blow to long-term economic potential, permanently reducing living standards in the United States.

source: nam