Hugh Johnson: Fear of ‘Fiscal Cliff’ Hurting Economy Already

Tuesday, 14 Aug 2012 12:32 PM

By Dan Weil

Many experts are worried about the “fiscal cliff” that may derail the economy next year. And already concern about that cliff is curbing growth, says Hugh Johnson, chairman of money management firm Hugh Johnson Advisors.

“It is clearly fear, or at least uncertainty, before the reality,” he tells Yahoo. “Nobody knows if their taxes are going to go up, or if it's going to be postponed and they're taxes won’t go up."

Huge tax increases and spending cuts are scheduled to begin January if Congress doesn’t take action.

“Anytime there’s uncertainty, it creates inaction, whether it’s on the part of individual investors or corporations, which are really puzzled,” Johnson says.

That uncertainty is helping to keep the unemployment rate high — 8.3 percent as of July — he notes.

“There's no question that this serves as a drag on corporate hiring and it shows up in the unemployment numbers.”

And the economy as a whole suffers. “That uncertainty, lack of confidence is going to be a drag on U.S. economic activity,” Johnson tells Yahoo.

He sees GDP growth improving a bit to 1.8 percent to 2 percent in the third quarter from 1.5 percent in the second. But, “that’s not a particularly good number,” Johnson notes.

Steve Blitz, chief economist at ITG Investment Research, sounds even more pessimistic.

“You’ve got more forces pulling growth down than pushing it up,” he tells MarketWatch. “We’ve downshifted from second gear back to first.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.