For at least the next six months, the economic outlook isn’t just weak, it’s precarious. Growth of just 2% or so both this year and next isn’t enough to withstand any significant bumps, and the landscape is dotted with hazards that could push the tepid economy into recession. They certainly will dampen consumer spending, as well as business investment and job creation.
SEE ALSO: Can Washington Boost the Economy?
Here's what we see on the horizon:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-- The debt ceiling crisis pushed off till 2013. Although federal borrowing will hit the legal cap long before the end of this year, the Treasury Department will be able to finesse an extension, juggling funds and delaying the day of reckoning till January or February. But that won’t reassure financial markets, which will become increasingly antsy with each day that passes once the official debt limit is breached.
-- Fading odds of a one-year tax deal before January. Polls indicating that a solid majority of Americans favor higher taxes for the country’s wealthiest are bolstering President Obama’s determination to keep rate cuts for all but the highest-incomers.
Plus, with raising the debt ceiling being off the table in a lame-duck session of Congress, there will be less incentive for Obama -- who won’t face voters again, whether he’s back as a second-termer in January or not -- to compromise before the current Congress adjourns, probably in late December. And both parties will figure that waiting till 2013 to deal with taxes and budget ups the odds of cutting a more favorable deal.
-- Eventually, an extension of 2012 rates -- retroactively, if necessary, but maybe not for all taxpayers at all income levels. Ditto for estate taxes: There’ll be a continuation of current rules -- an exemption in the neighborhood of $5 million and a top tax rate of 35%. With corporate rates, capital gains and dividend treatment also up in the air, businesses will put off investment as well as hiring decisions, thus thwarting growth.
-- A last-minute postponement of deep budget cuts now slated to start in January. The unfortunate message to global markets: “U.S. reneges on promise to pare debt.” Worse, there's little reason to expect better follow-through come the next deadline.
-- Rising Mideast tensions and a growing chance of a military strike in Iran. Indeed, it’s less a question of whether Iran’s nuclear facilities will be hit than when and by whom. The U.S. is nowhere near ready to make such a move yet, but Israel can and will act independently if the U.S. won’t, potentially as soon as next spring.
Any resulting oil price spike would be short-lived. But if it comes in the midst of other stresses -- a stalemate over the debt ceiling, for example -- the impact will be multiplied. Just prolonging the worry about a possible supply disruption will sting, holding prices for crude oil and gasoline at artificially high, fear-inflated levels. As Mark Zandi, chief economist with Moody's Analytics, says, “Higher oil prices are always a significant worry. Nothing hurts our economy more.” Meanwhile, China’s growth is slowing and Europe’s woes remain unsettled.
We still expect the U.S. to escape the worst, avoiding another recession. But with pitfalls ahead and on all sides, it's sure to be a bumpy ride.
-
-
More states roll out pay transparency laws
Earlier this month, pay transparency laws went into effect in Washington and California, requiring employers to list pay ranges on job listings.
-
Stock Market Today: Stocks Slump Ahead of Tech Earnings, Fed Meeting
A busy week on Wall Street kicked off with losses for the major benchmarks.
-
Kiplinger's Retail Outlook: Sales on a Downtrend
Economic Forecasts Weakening retail sales and high inventories point to further cuts in production.
-
Kiplinger's Inflation Outlook: Goods Prices Continue to Ease, Rent Costs Accelerate
Economic Forecasts Kiplinger's Inflation Outlook: We expect the declining overall inflation trend to continue.
-
Kiplinger's Trade Outlook: Trade Deficit Narrows Sharply in November
Economic Forecasts Kiplinger's Trade Outlook: Trade Deficit Narrows Sharply in November
-
Business Cost Outlooks for 2022: Eight Key Sectors
Economic Forecasts What’s in store for all sorts of business costs in 2022?
-
Our "K-Shaped," Uneven Economic Recovery
Economic Forecasts Confidence is key to the recovery, but the sentiment depends on consumers’ financial circumstances.
-
7 Ways the Pandemic Will Change Big U.S. Cities
Economic Forecasts Historically, pandemics transform cities.
-
What Do Negative Oil Prices Mean?
Economic Forecasts With oil prices having dipped into negative territory, S&P Global Platts's Vito Turitto joins our hosts Sandy Block and Ryan Ermey to break down exactly what's going on. Also, the cohosts give an update on stimulus checks.
-
Is Your State Prepared for a Recession?
Economic Forecasts The Kiplinger Letter's managing editor Jim Patterson joins our hosts Ryan Ermey and Sandy Block to break down the ramifications for states that aren't equipped to handle the upcoming recession. The pair also discusses bear market investing strategies.
