The CBO now says GDP will shrink 2.9 percent in the first half of 2013 if Congress does nothing to avoid the massive tax hikes and spending cuts scheduled to take effect in January. That compares with a 1.9 percent contraction forecast as recently as May.
“Such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession,” the report said. “Whether lawmakers allow scheduled policy changes to take effect or alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy.”
NRF is following the issue closely because talk of economic uncertainty during the upcoming holiday season could cast a huge shadow on consumer confidence – and retail sales at a time of year that means the difference between profits and losses for many merchants. NRF wants the issue resolved before that can happen.
“If you’re in the retail business … as you look toward the end of this year and what’s going to happen during the holiday season, we’ve all got to be mindful of that,” NRF President and CEO Matthew Shay said during an interview on CNBC earlier this month. “Even though the consuming public may not understand the subtleties of what’s going to happen with the fiscal cliff, there’s no doubt they understand the overarching challenges with our economy.”
Democrats and Republicans each responded to the new CBO report by issuing statements blaming the other for not doing enough to avoid the fiscal cliff. But NRF stands by Shay’s call for both to set partisanship aside and get something done.
“This is a problem of our own making,” Shay told CNBC. “We made it happen and we have the ability to fix it. We ought to get Congress and the Administration and policymakers focused on fixing the problem and not using this as a campaign issue from here all the way to November 6.”