Looming debt ceiling fight threatens recovery

A drawn-out debt ceiling fight in Congress could undermine the jobs growth that is expected later this year. 

Economists argue that the nation’s economic expansion is poised to accelerate in the fall once it weathers the headwinds of tax hikes and spending cuts.

{mosads}But lawmakers must clear this looming major fiscal hurdle to provide greater certainty for businesses to increase hiring heading into 2014.

Failure or a delay in raising the debt limit would set up another roadblock to a more robust recovery, especially if lawmakers hold off until the last minute, which some are expecting.

“I don’t expect job growth to meaningfully pick up until the fiscal headwinds stop blowing as hard,” Mark Zandi, chief economist of Moody’s Analytics, told The Hill.

“Assuming Congress and the administration pass legislation raising the debt limit and funding the government next year in a reasonably graceful way, then the job market should swing into higher gear next year.”

Employers added 175,000 jobs in May and the unemployment rate rose to 7.6 percent as more people jumped back into the labor market, the Bureau of Labor Statistics reported on Friday.

Presumably, once the economy absorbs the combination of $80 billion in across-the-board spending cuts and tax hikes that are expected to hamper growth through the summer, a broader expansion is expected to kick in later this year.

After slowing in recent months, the Economic Advisory Committee of the American Bankers Association said Friday that it sees job growth accelerating to 200,000 jobs a month next year.

“The strengthening growth in jobs will bring the unemployment rate down to 7.2 percent by year-end,” said Scott Anderson, committee chairman and Bank of the West chief economist.

According to the committee, which includes 13 chief economists from among the largest banks in North America, the unemployment rate will fall to the Federal Reserves’s threshold of 6.5 percent in the first quarter of 2015.

Chad Moutray, chief economist for the National Association of Manufacturers (NAM), is concerned that, once again, debate over the debt limit will be protracted and could stop the recovery in its tracks.

Republican attempts to tie other legislative efforts, such as tax or entitlement reforms, to an increase in the borrowing limit, could complicate a final deal, especially as the deadline nears when the federal government can no longer pay the nation’s bills.

Treasury Secretary Jack Lew has said that deadline is sometime after Labor Day while the Congressional Budget Office has estimated that the ceiling might not need to be raised until October and November because of increased tax revenue.

Lew is adamant that the Obama administration will not negotiate or risk the creditworthiness of the United States.

But that vow is matched by congressional Republicans who are equally determined to force fiscal concessions even though there is little clarity, at this point, about what exactly House and Senate GOP leaders will want to extract from their growing list of priorities.

Manufacturers are especially concerned about the certainty of fiscal policy in Washington, which, on top of the financial woes in Europe and Asia, have taken a bite out of their ability to increase exports and grow their businesses.

The sector drove the start of the economic recovery but that momentum has tailed off recently. Factory activity contracted in May and the Friday jobs report showed a loss of 8,000 jobs.

“The second half of this year hopefully is better than the first half,” Moutray said.

He expects that consumer spending and the housing recovery will help but there are hurdles even beyond the debt ceiling, including tax reform, the completion of trade agreements and eventually the 2014 mid-term elections.

“This strong growth demonstrates that housing has finally caught up with the broader economic recovery,” Anderson said.

There also are clearly an abundance of other legislative and regulatory concerns weighing on growth — the anticipation of tax reform, Europe’s struggles and implementation of the healthcare law.

“All of those things combined put downward pressure on economic growth.”