Only thing certain about new year is uncertainty

That uncertainty, which is causing businesses to draw in their horns, is likely to be reflected in two important December indicators this week — the Institute for Supply Management's (ISM) manufacturing survey on Wednesday and the jobs report on Friday.

The ISM index probably rose to 50.2 from 49.5 in November, still well below the second-quarter average of 52.7, while the economy is expected to have added 145,000 non-farm jobs after a gain of 146,000 the month before, according to economists polled by Reuters.

The unemployment rate is likely to have ticked up to 7.8 percent from 7.7 percent. That figure is more important than ever since the Federal Reserve promised to keep monetary policy ultra-loose till it drops to 6.5 percent.

Attention is focused on the immediate consequences of a plunge off the fiscal cliff — the combination of tax rises and spending cuts amounting eventually to US$600 billion that will be phased in from Jan. 1 in the absence of a deal.

The economy would almost certainly relapse into recession without a solution in the weeks ahead.

Yet economists are also increasingly concerned by the inability of Democrats and Republicans to compromise and what that impasse says about the chances of putting America's public finances on a stable medium-term footing.

“Recent signals from the economy, especially signs of renewed life in the housing market, suggest that a stronger recovery may finally be taking hold. But these encouraging developments could yet be snuffed out by missteps on the fiscal cliff,” according to Nathan Sheets, global head of international economics at Citi in New York.

“Similarly, a failure to address the government's longer-term debt-sustainability problems would pose more long-lived risks for the economy — and for the dollar's role as the global reserve currency,” he said in a report.

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