01 March 2013 00:12 [Source: ICIS news]
HOUSTON (ICIS)--The sequester, or more than $85bn (€65bn) in federal spending cuts, will kick in at midnight on Friday, and several chemical and manufacturing trade groups said on Thursday that the uncertainties are “detrimental” to the economy.
The Manufacturers Alliance for Productivity and Innovation (MAPI) predicts that inflation-adjusted GDP for 2013 will expand by 1.8%, with manufacturing production growing by 2.2%.
However, the sequester could reduce the GDP by 0.4 percentage points and manufacturing production by 0.2-0.3 percentage points.
“With the sequester, we won’t really know until it happens,” said Daniel Meckstroth, MAPI chief economist. “The problem with the sequester, as opposed to just cutting spending programs, is the sequester is across-the-board cuts with very little discretion that can be used.”
Meckstroth explained that if the government shuts down because Congress cannot find a resolution to its next hurdle - when the current temporary spending law expires on March 27 - essential programs such as those affecting health and safety would not shut down. However, because Friday's sequester affects every department, the microeconomics effects are unknown.
“If you reduce meat inspections, you reduce food production,” he said. “If the cuts affect [the Transportation Security Administration], you may have an effect on sales."
"It’s not the cut. It’s the way it’s applied,” he added.
The Society of Chemical Manufacturers and Affiliates (SOCMA) said the sequester is a “strong concern” to its members, many of whom comply with a slew of federal regulations.
The US Department of Homeland Security "will be forced to slash 5% of its budget, which could impact funding for the nation’s chemical security regulatory program, which secures facilities against terrorist attacks", SOCMA said.
“Cuts to [the US Environmental Protection Agency’s] budget likely will result in less emphasis, if only temporarily, on compliance assistance, from which many small and medium-sized chemical manufacturers benefit,” SOCMA added.
Also, SOCMA’s Bulk Pharmaceutical Task Force members are concerned that potential cuts at the US Food and Drug Administration could derail the generic-drug user-fee program, which is designed to speed safe and effective drugs to the public and reduce costs to the industry.
“However, if the sequestration goes into effect and diminishes the amount of money FDA could apply to the program as required by law, it would prevent the agency from collecting user fees,” SOCMA said. “This would effectively delay the review of drug applications and inspection and result in a program running on fumes.”
The National Association of Manufacturers (NAM) said it conducted a study in July, and other studies have also concluded the same thing – that the sequester can have dramatic effects on the overall economy.
The sequester could cost the US more than 1m jobs, of which 120,000 would be in manufacturing, said Chad Moutray, NAM's chief economist.
“We’re seeing a lot of manufacturing [companies and organisations] pulling back on hiring and spending,” he said. “Now that the sequestration is [Friday], some are talking about layoffs.”
Moutray said NAM members realise that the current economic situation cannot continue and that “some very big things” need to be done in terms of deficit reduction.
“What we’ve been hoping the administration would do is thread that very delicate needle between fiscal responsibility, be smarter, and at the end of the line, reach a goal that continues to be competitive and moves progress forward," he said.
The National Association of Chemical Distributors (NACD) said the US needs a long-term solution to its economic situation.
“The sequester is yet another Washington-manufactured crisis,” said Chris Jahn, NACD president. “The economy would be better off if there were less drama and more action in Washington.”
Jahn said the typical American family earns less than it did when President Barack Obama was first elected in 2008.
“Washington needs to get off its current spending binge to help the private economy grow long term,” he said. “Federal spending has gone up 30% in the last five years. Slowing the rate of growth of the increase in spending is not a crisis.”
($1 = €0.76)
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