Business

What budget cuts? U.S. sequestration is not as bad as feared

In March, U.S. President Barack Obama called sequestration “just dumb.” Many others said it would destroy the U.S. economy. Well, that hasn’t happened—not yet, at least.

Sequestration, the broad cuts that will slice $85 billion from the country’s budget this fiscal year, became reality after Republicans and Democrats failed to reach a budget consensus three months ago. Since then, 810,000 jobs have been added in the U.S. (175,000 in May). The unemployment rate rose in May to 7.6 per cent from 7.5 per cent, but that’s because more people entered the workforce. (It was 7.9 per cent before sequestration). Rising house prices and soaring markets have kept the economy climbing.

That’s not to say there hasn’t been pain, but the effects appear to be isolated to the sectors directly hit by the cuts, such as the public sector. The Pentagon has imposed 11 unpaid days off on about 650,000 civilian employees between July and September, for example. And concerns remain that the rest of America isn’t out of the woods. Some spending cuts dependent on local approvals, such as rent hikes, have yet to come into play.

Goldman Sachs estimates that the toll the sequester will take on growth will be 0.6 per cent by the fourth quarter of 2013. Still, maybe austerity isn’t so bad after all.

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