Self-Inflicted Wounds Threaten Jobs Market Meltdown
Consumer spending continues to expand, though haltingly, and the annual federal deficit has increased from $161 billion before the financial crisis to more than $1 trillion, injecting enormous additional demand into the system. However, too many of those dollars go abroad for Middle East oil and Chinese goods that do not return to buy U.S. exports, and higher oil prices will up the trade gap in 2013
Businesses, consequently, are pessimistic about future demand for U.S.-made goods and services, and bearing higher corporate and other business taxes than foreign competitors, rising employee benefit costs mandated by Obama Care and more cumbersome business regulations are reluctant to hire in the U.S.
Although rising wages in China are making U.S. locations somewhat more attractive than in recent years, cumbersome business regulations add costs and slow, and even stifle, Greenfield investments and expansion of existing facilities. According to the U.S. Chief Executive of Flextronics International, a world-wide product design, logistics and manufacturing services company, a manufacturing plant for 5000 employees can be set up in Asia in 90 days but it takes much longer in the U.S.
Those barriers have slowed the manufacturing renaissance and frustrated the virtuous cycle of temporary tax cuts and additional government spending, new hiring, and additional household spending the first-term Obama stimulus sought to beget.
Now the fiscal cliff deal will raise combined federal and state tax rates for many small businesses on expansion and reinvestment to maintain existing facilities to more than 50%. Look for multinational corporations to shift sourcing and jobs from many U.S. small enterprises to Asia.
Prior to the fiscal cliff tax increases, economists predicted growth of about 2% for 2013. However, these new taxes on small business investment and innovation strike at the heart of this once vibrant American jobs creating machine -- look for growth near 1.5% and a tougher jobs market.
Growth below 2% is difficult to sustain -- any disruption could set off a cycle of layoffs, falling consumer spending and ultimately a recession that pushes unemployment into double digits.