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'Fiscal cliff' will temper economic growth, Chapman forecast says

Chapman University economists predict the nation's GDP will grow only 2.1% in 2013 because of the scheduled year-end tax increases and spending cuts.

November 28, 2012|By Ricardo Lopez, Los Angeles Times
  • President Barack Obama speaks during a meeting with his Cabinet on Wednesday. Part of the meeting focused on the "fiscal cliff."
President Barack Obama speaks during a meeting with his Cabinet on Wednesday.… (T.J. Kirkpatrick, Bloomberg )

The threat of the "fiscal cliff" is expected to temper economic growth in the U.S., according to a report released by Chapman University economists Wednesday.

In the quarterly forecast, Chapman economists set out a moderate view of the full effect of the fiscal cliff — the year-end tax increases and spending cuts that are set to take place if Congress doesn't act.

The forecast predicted that payroll will increase as planned, capital gains and estate taxes will rise, but cutbacks in government spending won't be as drastic as expected.

Even so, "we still see reduced government spending and higher taxes cutting spending by at least $200 billion," the report said. "Such a reduction in the deficit will surely have long-term benefits. But the effects will be negative in the short run."

The short-term effects will mean meager growth for the country's gross domestic product. The forecast predicts GDP growth of 2.1% in 2013 — about the same as 2012.

The U.S. economy continues to be vulnerable to the sluggish global economy as the Eurozone plods through its debt crisis and China's economy slows. The trade deficit, the difference between exports and imports, is expected to grow $18 billion to $433.9 billion in 2013.

Quiz: How much do you know about the 'fiscal cliff'?

"This drop in net exports surely isn't the stuff of an economic meltdown, but it's yet another negative that needs to be added to the … hit from contractionary fiscal policy," the report cautioned.

There were a few bright spots in the forecast.

Consumer spending is expected to increase $170 billion in 2013, the result of an improving labor market and a burgeoning housing recovery.

Consumer sentiment, according to a Chapman index, is at its highest level since the third quarter of 2007.

"Despite higher taxes hitting households' pocketbooks, our forecast calls for an increase in consumer spending of 1.8%," the economists wrote.

The Chapman forecast predicts statewide employment will increase 1.6% in 2013 — a gain of about 234,000 jobs.

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