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Diplomacy in Action

Consumer Confidence, the Presidential Campaign and the Fiscal Cliff Facing the Next President


Kathy Bostjancic, Director for Macroeconomic Analysis, The Conference Board and Lynn Franco, Director, Economic Indicators, The Conference Board
New York, NY
November 6, 2012




State Dept Image/Nov 06, 2012/New York, NY
Date: 11/06/2012 Location: New York, NY Description: Kathy Bostjancic, Director for Macroeconomic Analysis, The Conference Board, briefs at the New York Foreign Press Center on ''Consumer Confidence, The Presidential Campaign and the Fiscal Cliff Facing the Next President - State Dept Image

1:00 P.M., EST

NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR

MODERATOR: Good afternoon. This is the first in our series of briefings today, Election Day, for the foreign press. We’re starting off with economic issues and we’re very pleased to have two briefers from the nonpartisan Conference Board. We’re going to start with Kathy Bostjancic, who is director for macroeconomic analysis, and she’s here with us in the room. And then we’ll also hear from Lynn Franco, who will be calling in via conference call. Lynn Franco is director for economic indicators at the Conference Board.

So with that, I’m going to turn it right over to Kathy so we can get right to it. Thank you so much.

MS. BOSTJANCIC: Thank you very much, happy to be here, and I have just a couple of slides to go along visually with the comments. I know you’re all familiar with and probably a little bit maybe even nauseated by the talk of fiscal cliff, but it’s still out there. It’s still a real issue – or set of issues – that need to be resolved, and are not likely to be resolved even after the election.

But here, we put up some of the numbers, and in our forecast, our best case scenario for the U.S. economy, we assume that we don’t go fully off the fiscal cliff. But what we see is the payroll tax cut is not extended, and the unemployment – extended unemployment benefits are not extended. If you add that up for this year, it’s roughly $140 billion. What that means is $140 billion does not go to individuals for spending. And that’s going to have a sizable negative impact on the first half of growth in 2013. So real disposable income – that’s income after taxes – will decline sharply in the first quarter, down about 3.5 percent or so, and consumer spending we think will average only about 1 percent in the first half of the year. We’ve been averaging about 2 percent, so you’re taking a full percentage point off of consumer spending. Then we do the math for the full year; that would detract about eight tenths of a percentage point from GDP growth. So we’re looking at GDP growth for 2013 – let’s make sure I have the right number – I think we’re looking at roughly around 1.5 percent or so.

By no means, though, is this certainty. I just want to say that this is what we’ve assumed the best analysis or guesstimation would be at this point, but it’s obviously unknown what’s actually going to be worked out. There is some talk of replacing the payroll tax cut with the tax credit that Obama had previously for working class – for workers and that could happen. But it’s just obviously very uncertain. I guess the only certainty that we seem to glean from political pundits is that there will be less moderates down in Washington than before. That’s maybe the only certainly or near-certainty that seems to be there. So that means more contention, more gridlock, and obviously less potential for agreement.

Our thinking, though, is that we don’t go fully off the fiscal cliff, because as you see the numbers – and again, I know you’re all very familiar with this – but it’s so large it seems unfathomable to think that the politicians would allow the economy to contract 4.6 percent. It would – actually, in terms of the economy, it would be a 5 percent drag. That seems so big. That doesn’t seem like it would happen. And instead, what we’ll probably do – get some type of deal that pushes this out into February/March, and then maybe they do a one-year deal – so you just kind of keep kicking the can down the road, so to speak.

The thing from the Conference Board – obviously, we’ve got Fortune 500 companies as members – what’s worrisome to them is the lack of certainty. So businesses, the equity market, bond market, their biggest enemy in some sense is uncertainty. So if they don’t know what their tax policy is going to be, they don’t know what Washington’s fiscal spending policy is going to be, it only adds to their reticence, basically. And if you look at the economy in general, this recovery or expansion, the thing that’s been lacking most is business participation – participation in terms of hiring and spending. The consumer has actually kind of done a pretty good job hanging in there. Consumers pushed up its savings rate, maybe not as high as some people thought or maybe argue it should be, but they’ve managed to keep spending, probably because they can’t have it any lower, around 2 percent. But the real missing ingredient is hiring and business spending.

Now the good news is on Friday, we did see some pickup in hiring. The previous two months were revised up as well. That 7.9 percent, besides all the speculation about whether that was a true drop in the unemployment rate, it held. So things started to – were looking better. Now of course, we did get the hurricane. That knocks us back temporarily for some period of time. It could detract – we’re still working through some of the final numbers, but it could detract around half a percent from fourth quarter GDP. Over time, we’ll see the rebuilding actually add to GDP growth because of the way GDP accounting is done in the U.S. A loss of a building – it hits negatively our capital stock, but our GDP is not measured by physical assets; it’s measured by growth, incremental change. So even though we say you lose a building, but if we build it back, you don’t count the loss in the GDP accounting; you only count the rebuilding. It’s obviously not a way you want to go about growing your economy, but the net result is that’s how our GDP accounting works.

But I think that the hurricane is just a temporary setback. The trend in growth – actually, we could take a look at the next slide, because here it kind of illustrates our GDP forecast. So again, the fiscal cliff is going to hit the first quarter, second quarter. And I should add, actually, in all fairness, that the fiscal cliff has already impacted fourth quarter growth and third quarter growth to some degree, because orders – business orders have plummeted and business shipments – again, businesses are just paralyzed right now trying to see what happens with the election and the fiscal cliff.

But once we get past this – the first half of the year and the fiscal cliff, again, if we’re correct that you get a one-year extension of all these things, then we can see growth pick up in the second half of the year. So, the rebuilding from the hurricane, that’s going to help, but most importantly, housing’s turning around in the U.S. And we’ve done some analysis, and based on work that we’ve also seen others do, if housing starts, construction activity continued at the pace we saw before the hurricane, and if you include the rebuilding, you could see something on the order to 50- to 60,000 new jobs being created because of a revival in construction activity. That’s real meaningful, because those jobs have decent wages. They’re not just low-paid workers. So you could start to see a real contribution, direct and indirect, from housing. Direct is more people working, construction activity, those dollars going to the economy, and then those people are spending more.

The other thing is that indirectly, you see housing values continue to rise, and that’s the so-called wealth effect. And every one-dollar increase in your housing wealth, you could spend six to eight cents more on consumption, and so it’s pretty meaningful. And that – by the way, not to segue too much, but that’s what the Federal Reserve is hoping to continue to stimulate and boost even further through their quantitative easing by buying mortgage-backed securities. Their hope is, even if indirectly they support the housing market and home prices, that that just keeps boosting and helping the consumer.

Let’s take a look at the next slide. So I guess – let me just – sorry, let’s just go back one minute. So I guess it's fair to say we’re cautious in the near term – the fiscal cliff and the hurricane, uncertainty around the election – but again, if you look at our forecast second half of the year, it starts to get better. It’s not 3 percent growth, but you’re looking at 2.7, 2.8 percent, and then if that continues, 2014 could start to look better. We don’t have official numbers for that yet, but we’re on a trend where it looks like we’re improving and finally kind of breaking out of that rut of where growth was hovering around 2 percent or so.

So let’s take a look at the next slide. Debt ceiling, well, that’s part of all of this, so they’re going to be fighting over how to deal with the fiscal cliff and the spending initiatives and taxes, and then how do you pay for everything, and of course, the debt ceiling could be held hostage again. Hopefully, it’s nowhere as dramatic or as damaging as last year, and hopefully they learned that we can’t bluff about not paying and reneging on our interest payments. But it’s there, and it looks like they have enough accounting maneuvers at U.S. Treasury to take us through February and March before they really hit it. But that just makes everything more complicated, obviously.

Take a look at – and by the way, if the sequester, that $66 billion in military and nonmilitary spending – both sides seem to want to get around that and to close that down, that sequestration. If that happens and they need to raise the debt ceiling, we’re probably going to be downgraded again in terms of our government by Moody’s or S&P. The debt rating agencies are going to downgrade the U.S. Treasury. On the other hand, does it matter? Last year, when we saw our debt downgraded, actually, U.S. Treasury prices rose and interest rates came down. We have about the lowest interest rate cost right now in the U.S. history, so it’s not a big deal. Partly, it’s because we’re the best of the worst. They have so many problems in Europe; where else are people going to invest their money?

Now, take a look at the next slide. I think the real critical question – and I’m not sure it’s going to be answered anytime soon – but really what has to be answered is the medium-term and long-term view on the debt and deficit issues in the U.S. This is a chart that is put out by the Congressional Budget Office. You could see it on their website. We’ve just put together – here’s sort of the base case that they have, and then here’s the alternative scenarios which are much more realistic. Their base case is always based on current law, which of course is never going to be what’s in place looking forward. So the alternatives are much more realistic, and what you can see is the pace of outlays far exceeds the pace of revenues, and that – therein lies the real big problem and how does that get fixed.

And if we look at the next slide, you could see the politicians – that’s really, I think, where the politicians and maybe the outcome of this election or even subsequent ones will have the most impact, that in the short term, I think there’s a potential – the fiscal cliff and politicians do something to stunt the recovery. They can hurt things. But if they don’t do something that’s very negligent and irresponsible, cyclically, the economy looks like it’s healing.

And in the short run, whether Obama wins or Romney and even the composition of Congress, unless somebody sweeps, which I think one party doing that is extremely low and unlikely – if we continue to have gridlock and divided government, the outcome of the election is not going to have much impact on the short-term economy. But it’s the medium-term view where we really need some clarity, and that’s where politicians can have some impact for good or worse. But laying out a credible, medium-term fiscal plan is what’s really needed, whether something such as Simpson-Bowles or something else. But therein lies – of course, everything’s wrapped up in that, and that’s where the real disagreement and the bipartisanship seems to be lacking right now.

So let me leave it at that and hand it over to Lynn. I think she’s going to make some comments, and then we’ll be here for questions afterwards.

MS. FRANCO: Thank you, Kathy, and I apologize for any background noise you may hear as the rebuilding in this particular area has already begun. So I apologize.

But let’s take a look at our first slide on consumer confidence, which improved in October following a sizable gain in September. So we’ve had two pretty strong back-to-back month gains, and in fact, the index now is at about a four and a half year high. So we’re definitely much improved from the lows that we saw back in 2009 where we were in the 20s. But as you can see on this chart, that sort of despite these improvements, we’re still well below levels that we had seen back in 2006 and 2007. But it does look that at least over the last two months, we’ve gained some momentum. However, when we take a look longer term, just given the scenario that Kathy’s already laid out for us, we can see that there perhaps will be some obstacles before us that may prevent consumer confidence from really gathering any substantial momentum. And the fiscal cliff is one in particular, since that will directly impact consumers in terms of their incomes and in terms of their spending ability.

And if we take a look at the next slide, it gives us a pretty good sort of overview of exactly what it is that’s been driving these improvements in consumer confidence. If we take a look at the blue line, that’s our present situation index, and that’s made up of two questions where we ask consumers to rate current business conditions and current employment conditions. And basically what we’ve seen is that the recent improvements in the job market have helped to boost consumer confidence and, in particular, consumers’ assessment of the present situation.

Now we still have a ways to go here. For instance, both in terms of how consumers are rating business conditions and employment, the pessimists continue to outnumber the optimists, though the ratio has really tremendously reduced itself since the onset of the financial crisis and the height of the recession. But I think we still have a ways to go, as you can see here, before we can say that consumers are truly confident. And possibly adding to also this improvement, as Kathy mentioned before, is the turnaround that we’re beginning to see in the housing market. As we well know, consumers suffered not only in terms of jobs, but in terms of their financial assets and home values as well. And while we’ve seen the recovery in the financial market, the housing market has sort of been a laggard, and the fact that now we’ve seen some improvement there should help to continue to boost consumers’ assessments.

When we take a look at their expectations, the orange line, here we ask consumers to assess their expectations regarding business conditions, employment, and income. And we’ve seen a great improvement in terms of how they rank business conditions and employment, almost an even proportion of pessimists and optimists, so that’s some good news there. That particular index is now above 80, which is a level that’s associated with growth, so that’s some further good news there. But again, sort of – there’s a lot of little clouds sort of looming in 2013 which really could sort of dampen consumers’ spirits.

And if we take a look at their expectations regarding income on the next slide we’d like to focus on, this is quite interesting because this recession, as we’ve said before, marked the very first time where the pessimists, as represented by the red line, the percent expecting their incomes to decrease over the next six months, versus the optimists, the blue line, the percent expecting their incomes to increase, reversed. That was the first time ever. Now we’ve seen that gap, which was very wide in early 2009, narrow and sort of – we’re almost at sort of a 1-on-1 ratio here. And we think that’s relatively good news.

A lot of it has come from both improvements in stock market, improvements in housing, improvements that we’ve seen now back-to-back-to-back, and in terms of job gains. So that’s sort of helping boost consumers’ expectations regarding their incomes. And with the holiday season right around the corner, I think this might just sort of represent some good news for retailers. And in fact, we’ve seen some other projections where folks are expecting, at least this holiday season, to be as strong if not a little stronger than last year.

So that was sort of the relatively good news, I think, until last week. And if we take a look at our next chart, we’ve received a lot of questions about the impact of Hurricane Sandy on consumer confidence, on consumer spending. And as you can see from this chart, unfortunately we do have a lot of other historical reference points. And what we’ve seen in particular, if we go back several years ago to Hurricane Katrina, what we saw there was that there was a decline in consumer confidence more so in the expectations component that tends to be quote-unquote, “our shock absorber,” less of a decline in the present situation. And that told us that despite the decline in consumer confidence, the fact that consumers continued to rate the present situation pretty much steadily really was a sign that there was more apprehension as opposed to an actual downturn in economic conditions.

And within generally four months or so, unless there’s some very severe economic consequences in terms of tremendous job losses, what we find is that consumer confidence returns to its trend. So here we would expect, if there’s going to be a significant impact, it’s more likely going to be in the expectations component, it’s going to be short-termed, and that leads us into 2013, which then is further complicated by the fiscal cliff. So we could have a little bit of a bumpy path in terms of where consumer confidence is over the next several months. We’ll probably have a greater decline in terms of confidence in the middle Atlantic and south Atlantic and New England regions, where the states were more impacted. We find that it tends to be more sort of a localized impact. And then in the longer term, you tend to get an improvement as sort of the rebuilding begins to unfold and employment picks up in those particular regions.

So I think overall what we’re seeing here, and what Kathy’s already said, is that there are some challenges on the horizon that have the ability to suppress GDP growth, probably more so in the first half of 2013 as opposed to the second half. Those shocks or those impending obstacles are also likely to impact confidence, and were also likely to be (inaudible) Hurricane Sandy, but overall, we would expect somewhat of confidence to stay around this 70-point range (inaudible) and is not (inaudible) enough to support significantly stronger confidence levels.

And I think that’s it, in a nutshell, and I’ll turn the mike back over to my colleagues over there, and I guess we can open the floor for questions.

MODERATOR: Please state your name and your media organization.

QUESTION: My name is Ahmed Fathi. I represent Al Wafd newspaper of Egypt. I have a quick question about the term “fiscal cliff.” We have seen, with the Irish case and with the Greek case and with the Spanish case, their situation and the symptoms were much harsher than the case with the U.S. economy. Why is there this pessimistic – over-pessimistic look to the U.S. economy?

And the other part – or the other question is about the accounting standards, the way you said that the GDP is measured by growth rather than real GDP. How does this – will it impact the rating on the future U.S. T-Bills that we know that’s going to be marked at for many countries around the world, that they invest actually in these vehicles for investment? Thank you.

MS. BOSTJANCIC: Okay. Yeah, thank you. So let me go back to the GDP measurement. So GDP – gross domestic product – how that’s calculated in the U.S., it’s the changes – it’s really – it captures changes in production, let’s say, and economic activity, as opposed to changes in outstanding assets or our capital stock.

So again, a building is standing, obviously has a utility and has great value to the use of citizens and businesses and to the economy. But once the business – once the building is built, in a sense – now, there’s some maintenance, obviously, that could add to GDP and improvement. That incrementally will add to GDP growth. That’s captured as production and construction activity. But once the building’s built, it no longer is counted as – it’s not a change in production or construction. So it no longer incrementally adds to GDP growth. It’s done, it’s built, it’s part of our capital stock and our assets.

And when we have these storms or manmade disasters and it destroys part of the asset or capital stock, that loss is not captured as part of gross domestic product in that accounting. And it’s not necessarily – when I use the term “accounting,” it’s not as if there’s something new; that’s just the way it’s always been captured, that existing physical assets, unless there’s something done to modify it, doesn’t add to current production in construction. And I think that’s the best way to think about it.

But if it’s destroyed and then needs to be rebuilt, that’s when it adds to growth. So the destruction, let’s say, of – again, we’ll just use a business and a corporate structure – the negative impact would be maybe workers can’t go there to work and there’s no production of goods and services from that building that previously stood. But the loss of the building itself doesn’t hurt GDP. It’s only if it was going to assist in the production of goods and services.

The rebuilding of it will add to growth. And that’s why we have this temporary loss from – that was a great chart, if we bring it back up, that Lynn had for consumer confidence. We can also think of that in terms of the impact on the economy, some of these natural disasters. Hurricane Andrew in 1992 was pretty powerful. It’s a drag on economic growth; again, the way it’s captured in the statistics temporarily.

And then typically we recover all, some if not all, of that lost production in subsequent quarters. And what we see is that these events have just a very temporary hit on the economy and that the previous trend that was in place – we go back to that trend. So it’s sort of a wiggle around the trend, but it won’t be a permanent setback to the U.S. economy.

Of course, though, there are dislocations and negative long-term consequence for local businesses and for residents; that’s for sure. But from the national economy – and again, how we do growth accounting – and in terms of our forward movement in the economy, it’s not going to be a big long-term impact.

In terms of the downgrade, there is a concern – I mean, to me, it seems the odds of us getting downgraded again are very high, because I don’t see either side, Republicans or Democrats, in favor of the sequestration of spending. Particularly on the military side, I think there’s very little support to see that go through, and so I think that they will find a way to get around or get rid of the whole sequestration. How they do that, I’m not sure, because they have to find a way to pay for it.

That’s the problem in Washington. There may be some agreements on certain things, like if we go back to the fiscal cliff table, I think there’s agreement that the Medicare doc fix – that 27 percent drop in reimbursement to doctors who cater to Medicare patients – neither side wants that to remain in place, but the problem is how do they pay for it? Is it decrease spending in other areas or increasing revenue? So we all know that’s where the gridlock and the stalemate is right now.

So there’s a lot of agreement that things that are on that fiscal cliff people don’t want to happen, is how are they going to pay for it. But I think that they get around the sequestration, and I think by consequence, because they’re not going to find an agreement on how to offset that in the budget, we’re going to get downgraded. I think the reading agencies are standing ready probably to downgrade us.

In terms of investors, how does that impact in demand for Treasury bills, and like you said, central banks around the world, foreign central banks and – investors may be impacted if it’s downgraded, but it’s probably not a low enough change in the rating that they then therefore can’t buy Treasury bills. It may be the case that some before could only buy double-A or triple-A assets; there may be some negative impact. But overall, what we saw last time is it didn’t have any big impact. In fact, again, I think the day after the downgrade or two days after, Treasury yields actually fell.

QUESTION: I have (inaudible) theory.

MS. BOSTJANCIC: Oh, you have a theory on that, okay. And again, I think that right now we benefit, as you all know, from still being the world’s currency unit – reserve currency – also there are so many problems in Europe, and so we still have that.

And then the first question you had – I’m sorry, what was the first – we had a three-part.

QUESTION: There was over-pessimism about the --

MS. BOSTJANCIC: Oh, the fiscal cliff.

QUESTION: Fiscal cliff in comparison to Europe, in particular.

MS. BOSTJANCIC: Interesting. So the over-pessimism being on the side of businesses, do you mean? Or --

QUESTION: (Inaudible) on both sides, government and business.

MS. BOSTJANCIC: And you – so you’re feeling that no one believes that we’ll actually see this full fiscal cliff take place? That’s the --

QUESTION: (Inaudible.)

MS. BOSTJANCIC: I think it’s the uncertainty in – you talk to business leaders and people who are in the position of making decisions, right, from a corporate standpoint, and most of them don’t believe that we would go fully off the cliff. But there’s no exact certainty, so they have to take steps accordingly. And it may not even be the full fiscal cliff, but it’s how are dividends going to be taxed, how are capital gains going to be taxed, what’s the corporate tax rate going to be going forward, are we going to have tax reform at all? And how is this all going to play out?

And some of that isn’t just the fiscal cliff, but it’s uncertainty of what the outcome of the election is going to be. Our view is that probably the election doesn’t have that much impact because we’re going to not have one party sweeping in and getting control of the White House and both sides of Congress, both houses. So we’re going to continue to have this gridlock and it’s not going to change things materially, and you just kind of still have this quagmire in Washington. So that’s why it’s really no change right now in that. That’s our view.

MODERATOR: Should we take a question from Washington?

QUESTION: My name is Andrei Sitov. I’m with the Russian news agency ITAR-TASS. Can you hear me?

MODERATOR: Yes.

QUESTION: Okay. I had the opposite question. I don’t see where the optimism comes from. I’ve been covering the IMF and the World Bank for the past 15 years. Their projections are regularly on the upbeat side. In your case, the argument that I’ve heard was it looks so terrible that nobody is going to do it. But where, in your opinion, is there room for political compromise? Basically, my question to you about this is what is your worst-case scenario? Because again, I don’t see where you get this confidence that the fiscal cliff doesn’t happen. So what is your worst-case scenario, and who of the two candidates is better equipped politically to deal with it, assuming, as you say and as everybody says, that we still remain with a divided government with the House probably under Republican control?

MS. BOSTJANCIC: Yeah. Good questions. And I should emphasize, if I didn’t already, that this is our best view of how politics are going to play out in the fiscal cliff. We by no means are experts in politics and don’t want to take a strong stand, but because we have to produce a macroeconomic forecast, by definition we have to try to take our best stab at how we think the fiscal cliff is going to play out. But nobody knows, and that really is a huge problem. The fiscal cliff is already impeding economic activity. Business orders and spending have already plummeted. I wish I brought that chart, actually. If you haven’t seen it, it’s startling to look at core business orders which take out the aircraft orders because it’s so volatile. We’ve just seen a nosedive. In fact, if you just looked at orders, the year over year growth change, we’ve seen a mood that we only see that’s coincident with recessions. So we’ve seen a recessionary drop in business orders and shipments because of this great uncertainty of the fiscal cliff and the election and how this gets all resolved.

What’s also interesting – and Lynn has this chart which I’m sure we could send to you if you’re interested – that we’ve seen the difference between consumer confidence and business confidence. So as Lynn talked about, consumer confidence has really picked up quite nicely and in tandem with and not surprisingly with the improvement of the labor market. But business confidence has actually gone down, and that – therein lies the fiscal cliff. The average person, the consumer – again, we haven’t surveyed this, but my perception as an economist is – doesn’t really understand or appreciate the fiscal cliff or think that they’re going to be necessarily impacted by the fiscal cliff. I don’t know – and again, I don’t want to be too strong making this statement, but there may be this pessimism on the behalf of consumer – of corporate leaders that we could have a fiscal cliff issue and the consumers don’t really appreciate or maybe don’t really understand it. It may be that the average consumer doesn’t realize that their payroll taxes are about to go up 2 percent. Therein lies maybe the dichotomy.

So your question about the optimism, I guess again it’s one of these things of it’s so big that it seems unfathomable to happen. But could parts of it happen? Could we have a debacle? Could we have a repeat of the debt ceiling? Absolutely. Are there downside risks to our forecast? Absolutely. And if anything derails, I guess in our view we look at the economic fundamentals. Even when we take into consideration Hurricane Sandy, it does not look like the underlying fundamentals should derail the expansion and the pickup in economic activity. Even including Sandy, we still would largely see growth pick up in the second half of the year. The one thing that could derail that is some irresponsible moves on the behalf of politicians in Washington. Maybe that’s the best way to say that without being overly confident or optimistic on the fiscal cliff or politics in – down there.

MODERATOR: State your name and media organization.

QUESTION: Hi, this is Makiko from Jiji Press, Japanese news agency. My question is pretty simple. What’s the best outcome of the election in terms of the economy, in terms of combination of president and Congress?

MS. BOSTJANCIC: Well, there’s that saying that the simple question is always the hardest to answer, and that’s the case here. Again, we’re a nonpartisan organization and we’re by no means political analysts, so I want to make that clear. But again, we have to have some understanding of the dynamics to produce a forecast and to analyze it.

Our feeling is unless you get something really unusual where you get one party sweeping the White House and Congress that we’re going to have the status quo, that there’s not going to be much agreement on tax policy and spending, and that I guess the best-case scenario – and again, it was sort of labeled as optimistic, but our view is that we don’t fully hit the fiscal cliff, that we have the payroll tax and unemployment benefits run off, but that in December there’s some temporary patch that takes us to February or March, and in February and March there’s maybe a six-month or some type of one-year agreement that keeps pushing these things off, because there is not the political ability to deal with them right now. And not dealing with them was so large that again, we think reasonable people will say let’s defer this. I’ve read this from other political pundits so it’s not at all our view or my view on things, but there is a saying that things in Washington could be delayed far further than what most people think can be the case. So decisions, important decisions on tax policy and spending, can be delayed far longer than we’re comfortable with or that we can even think about.

So what our forecast assumes is really nothing gets done, you continue to have gridlock. It’s hard to say when that change is. Maybe it’s the mid-session election where you get some change.

MODERATOR: Any other questions? Any questions from Washington? (No response.)

MS. BOSTJANCIC: Good. Well, I guess everyone enjoy Election Day and the excitement, and I hope we have a verdict. Take care.

MODERATOR: Thank you so much. We really appreciate your coming in today.

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