Businesses delay investments, hires

Aug. 6, 2012 at 11:02 AM
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WASHINGTON, Aug. 6 (UPI) -- U.S. manufacturers are delaying new investments and hiring, saying they fear the gridlock in Washington will yield tax hikes and budget cuts in January.

Executives say the fiscal impasse has prompting them to ratchet back plans now, rather than wait for any resolution to the standoff among congressional Democrats and Republicans, The New York Times reported Monday.

The two parties are at odds on how to extend the tax rate cuts enacted during George W. Bush's presidency beyond January, the same month that automatic spending reductions are to take effect unless there's a deal to reduce the federal deficit.

The combination of tax increases and spending cuts is creating an economic threat called "the fiscal cliff" by Ben S. Bernanke, chairman of the Federal Reserve.

Hubbell Inc., based in Shelton, Conn., is among the manufacturers who have sounded the alarm, joining policy-makers, economists and military industry executives whose companies would be hurt by the government reductions.

Hubbell, a manufacturer of electrical and electronic products, canceled several million dollars' worth of equipment orders and delayed factory upgrades in the last few months, said Timothy Powers, the company's chief executive officer. It has also has delayed hiring for about 100 positions that would otherwise have been filled.

"The fiscal cliff is the primary driver of uncertainty, and a person in my position is going to make a decision to postpone hiring and investments," Powers told the Times. "We can see it in our order patterns, and customers are delaying. We don't have to get to the edge of the cliff before the damage is done."

More than 40 percent of companies surveyed by Morgan Stanley in July cited the "fiscal cliff" as a major reason for curtailing their spending, said Vincent Reinhart, chief U.S. economist at Morgan Stanley.

If Congress does nothing to extend the tax provisions and develop a budget plan to avert scheduled reductions in government programs, including defense, taxes will rise by $399 billion while federal government spending will fall by more than $100 billion, a Congressional Budget Office analysis said.

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