Politics and more at play in painful job numbers

European troubles an ‘unwelcome truth’

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Economists from Federal Reserve Chairman Ben S. Bernanke on down have warned that the fiscal crunch scheduled for Jan. 1 is so large that it would plunge the U.S. economy back into recession.

Mr. Bernanke has said the Fed would be unable to do anything to prevent such a recession if Congress fails to stop the fiscal train wreck. Yet few expect Congress to take any action until after the November elections.

Fear over how the political drama will play out — compounded by not knowing who will be the newly elected president at the end of the year — has paralyzed planning at some American businesses. Many economists cite the possibility of draconian tax increases and spending cuts as the biggest obstacle to growth and business investment at present.

“Risks from Europe and the fiscal cliff have increasingly impacted business spending,” and likely will hold down growth for the rest of the year, said Vincent Reinhart, an economist at Morgan Stanley.

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