Passed by Congress in August 2011, the commitment to cut approximately $1.2 trillion in government expenses is looking more and more likely to take effect on Jan. 2, 2013.
As designed, the expense savings would be split between defense and non-defense at roughly half the savings from each area.
These spending cuts are planned to be implemented over a nine-year period.
As this $1.2 trillion of spending cuts looms nearer and nearer, both sides of the political aisle are positioning themselves to deflect the inevitable criticism that will follow implementation.
To further confuse the average taxpayer, the proposed spending cuts are now collectively referred to as "sequestration."
Assuming sequestration takes effect as currently constituted, certain sectors of the U.S. economy are more likely to be affected in the near term. Some examples of sectors most likely to see their revenues decrease somewhat are the following.
Aerospace and defense sectors are the most likely to see their revenues decrease, if the U.S. government is forced to reduce spending in early 2013 as directed by the sequestration guidelines.
Within these sectors, those companies with the greater dependence on U.S. government contracts will most likely see the greater effect on their revenues.
Various health care service providers have substantial exposure to revenues from the U.S. government. A number of companies involved in supplying health care equipment depend heavily on revenues attributable to the U.S. government.
Additionally, selected companies involved in health care technology and related life sciences efforts could see their government-sourced revenues decrease as a result of the implementation of sequestration.
Whether or not the sequestration will take effect cannot be determined today.
Uncertainty as to whether or not sequestration takes effect is putting pressure on certain sectors of the investment universe.
Ongoing uncertainty of this magnitude stifles business activity in these market sectors and hinders the desired recovery of the U.S. economy.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.
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