The fiscal cliff is a major concern for many Americans. Doing nothing to address these concerns is a losing proposition and is only likely to happen if partisan politics creates an unbreakable gridlock. The result would be an immense tax hike that negatively affects consumer spending in 2013, and contributes to a recession in 2014. Flow-through businesses also would be negatively impacted, hurting job creation and economic growth. 

However, based on past experience, my expectation is that Congress will reach some sort of agreement on the fiscal cliff late this year or in early 2013 -- removing an avowed cause of uncertainty and thereby providing a boost to economic activity in 2013. Higher taxes on the middle class will occur even without the pain of the fiscal cliff, and this alone will lead to a reduction in consumer activity in the latter half of 2013.

Adding to my positive outlook is the fact that virtually all of our leading indicators are pointing toward more economic expansion over the next two quarters. We can see rising trends in the ITR Leading Indicator, U.S. Leading Indicator, Purchasing Managers Index, Housing Starts and Employment. 

These signals indicate that now is the time to take advantage of pessimism and low prices. Spend some money to upgrade operations in an effort to maximize efficiency. Don't be driven by the "there be dragons" headlines; instead chart a course that meets the challenges of 2013 and takes advantage of the opportunities that will be offered.

 

Contributing Editor Alan Beaulieu is an economist and president of ITR. He is co-author, with his brother Brian, of "Make Your Move," a book on spotting business-cycle trends.