The Corner

The Consequences of Default (Already)

It’s a cliche that businesses don’t like uncertainty. I’m convinced that one of the reasons that investment/hiring has been so sluggish in the current recovery from the depths of 08/09 has been the amount of uncertainty out there–whether it’s on taxes, regulation or, well, you name it…

 

Following that logic that through you might expect the default debacle to have an effect on business investment plans. Here’s one sign that it’s already doing just that:

Capital budgets have taken a hit over the past 90 days, according to the ChangeWave survey. Only 8% of corporate buyers say their company’s overall cap budget has increased – 2-pts worse than the previous survey. Another 23% say their cap budget has adjusted lower – 6-pts worse than previously. All told it represents a net 8-pt loss since last quarter. The ChangeWave survey also found an unexpected contributing factor – which became apparent when corporate buyers were asked the following:

Moody’s and Standard & Poor’s have threatened to lower the United States’ AAA credit rating because of Washington’s inability to legislate an effective debt reduction package. Wide differences continue to remain between the two political parties on how to resolve the debt reduction issue. Thinking about your company’s overall capital budget for 3rd Quarter 2011, has the debt reduction impasse and continuing controversy caused your company to make any adjustments to their capital budget over the past 90 days?

16% reported their 3rd Quarter cap budget had Adjusted Lower over the past 90 days because of this issue. Only 1% said their cap budget had adjusted higher.

It should be noted that two-thirds (69%) said the debt reduction impasse has had No Impact on their 3rd Quarter cap budget and another 14% said they Don’t Know . But when 16% of companies say they are adjusting their capital spending budgets lower because of an issue it means that it is having a serious damaging impact – especially in the midst of a tenuous post-recession recovery. Of course, there are other contributing factors to the slowdown in capital spending. But the ChangeWave survey results clearly show the debt reduction impasse and continuing controversy in Washington – in and of itself – is contributing to the U.S. economic slowdown. The issue is no longer simply what might possibly happen August 2nd; rather the survey findings show that real damage to the U.S. economy is already occurring.  

H/t: Business Insider

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