Money & Business

Sequestration: Business Economists Predict Deep Impact

By / Feb 26, 2013

The National Association for Business Economics’ February 2013 outlook suggests that most economists expect sequestration to slow growth in the country’s gross domestic product.

It’s no secret the sequester has everybody on their toes. As the March 1 deadline gets closer and closer, the pressure to find an alternative gets bigger and bigger.

It’s hard to say what sequestration won’t affect if the deadline passes, but economists aren’t holding their breath for a solution. A recent survey by the National Association for Business Economics (NABE) showed that 60 percent of economists foresee sequestration becoming a reality. However, not all is looking glum for this fiscal year.

Here are some highlights from NABE’s February 2013 Outlook:

The positive: The economists surveyed suggest a slow, but almost certain, improvement in civilian unemployment. According to Reuters, the jobless rate is expected to drop to 7.2 percent in the next year—which would be the lowest rate since Barack Obama became president. In terms of federal deficit, it would likely shrink to $900 billion in fiscal 2013 and $761 billion in 2014, if sequestration occurs. That’s a big difference from 2012’s $1.09 trillion in fiscal deficit. The number would likely become even smaller after the 10-year sequestration period, which would cut up to $1.2 trillion in spending.

The negative: There’s some pessimism when it comes to sequestration. More than 95 percent of those surveyed believed the growth rate in the gross domestic product (GDP) will be reduced due to the uncertainty surrounding sequestration and the debt ceiling, along with other fiscal imbalances in the U.S. Sixty percent of the economists polled expect the automatic budget cuts, a total of $85 billion in 2013, to take hold as scheduled after March 1. However, more than a quarter of the panelists expect sequestration to be deferred, while 13 percent think it won’t even happen. Either way, economists are suggesting a 2 percent growth in GDP in 2013, which is a little more than the actual growth in 2012.

Industries affected: Numerous industries across the board are expected to be affected by sequestration, from defense to health care to education to government services. Recently, a group of associations likely to be affected by nondefense discretionary spending cuts banded together in a battle against such cuts. The group, NDD United, expressed concern that the cuts would affect numerous walks of life. “Every day these programs support economic growth and strengthen the safety and security of every American in every state and community across the nation,” the group wrote in a letter, signed by 3,200 associations and other organizations.

Anita Ferrer

Anita Ferrer is a contributor to Associations Now. More »

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