Mitchell Reports | March 01, 2013
>> all of this will cause a ripple effect throughout our economy. layoffs and paycuts means that people have less money in their pockets and that means that they have less money to spend at local businesses. that means lower profits. that means fewer hired.
>>> so, how will the sequester actually impact the economy? let's ask two economic experts. i'm thrilled to have both of them. greg and steve liesman , cnbc senior economics reporter. greg , i want to start with you. so much back and forth. this is doomsday. this is not bad. bobby jindal governor of louisiana said the governor trying to scare people. that is the republican argument here. you know this stuff. what are the real world impacts today's march 1st , tomorrow is march 2nd . post sequester tomorrow. what are the real impacts in the next week?
>> they will be almost nothing because the main impact will be reduce grants to various organizations, people who run head start programs and furloughs of federal workers. the federal government must give 30-days notice and very few agencies have done so yet. those impacts won't fall on us until april. we will see the hint of the economy on 0.6%. now, not great, but very manageable. better than the tax hikes we might have had. spillover impacts on industries that rely on the federal government to run smoothly. for example, if they start closing a lot of air traffic control towers and ending midnight shifts, that is going to force emergency traffic and, more important, cargo traffic to cut back on the number of flights. if there's reduction in people at the borders, for example, between canada and the united states , that is going to slow down the shipments that are very crucial to the auto industry 's supply chains.
>> steve, i've been watching the market out of the corner of my eye for the whole week wondering how the market will react. it seems, i have not kept an iron clad track of it today, but it seems like the market, it looks certainly not like the debt ceiling with fiscal drops. it looks like a ho-hum event to wall street as it looks to the market. am i oversimplifying it and once the sequester kicks in, the market will move in any way, shape or form.
>> at some point, chris , i don't know, three, four weeks ago the market learned to stop worrying and loved the sequester. i don't know if it's love the sequester, but certainly in itself, the sequester is not a fiscal cliff. it's not a debt ceiling show down and it's not a government shutdown . just to add to what greg said. that 0.6% of gdp probably will cost 500,000 to 700,000 jobs which is meaningful and the problem is not the sequester itself, chris . the other things that have happened. there have been other things that the government has done. remember the fiscal cliff debate. they have raised the payroll tax back up and they did some spending cuts and that combination of things that probably dooms us to say sub 2% growth this year. so, people may not feel it next week, but it should probably show up and a little bit slower growth, maybe there's a person out there who won't get a job because of it. it will have an effect. doomsday is overrated, perhaps, or perhaps exaggerated. but there will be meaningful impacts.
>> greg , i want to talk because this doesn't exist in a vacuum, obviously. the housing market . recovery. i don't know, maybe -- if that's too strong a word, you tell me. is there a possibility that growth in other areas upsets in some way this 0.06 impact? or not. are there other places to look to see if this austerity does go through that there are growth areas, i should say.
>> absolutely. multiple forces acting on the economy in any given time. not just a possibility, but a probability and, yes, a strong recovery under way will go considerable distance to mitigating the impacts of this austerity. just the rise in the stock market we had to date and the improvement in housing prices could add 0.7% to gdp this year.
>> chris , can i just -- yeah, absolutely.
>> with what greg is saying, yes, it can offset it, but you do need to achieve a certain velocity of the economy in order to bring down the unemployment rate . if you dip below that level, you're going to have a rise in the unemployment rate and that has all kinds of nasty spillover effects that come after that. so, yeah, you would have a dollar of housing over here and offsetting a dollar government. but if you end up reaching below that, worse impacts for the economy.
>> can i add --
>> very quickly.
>> we also have negative unexpected. gasoline prices are up. 0.2% gdp and the election in italy raised european debt pressure on us, as well.
>> i feel smarter having been involved in this. steve liesman , greg , thank you.
>> we have done our job then.