Businesses 'not hiring' because of economic uncertainty
| New York
Last month, businesses took down the 鈥渘ow hiring鈥� signs.
Why?
The biggest reason appears to be 鈥渦ncertainty.鈥�
Talk to a business group, economic development executives, and corporate decisionmakers, and many of them point a finger at some form of risk or policy change that may have consequences for their business. They worry whether they can afford to take on a new hire.
Some of their worries are more intangible, such as the consequences of the stock market falling sharply 鈥� as it did on Friday when the Dow Jones Industrial Average lost 323.31 points, or 3.15 percent of its value.
鈥淐ompanies just got through laying off a substantial portion of their workforce. You need a good reason to add back workers,鈥� says Dan Meckstroth, chief economist for Manufacturers Alliance/MAPI in Arlington, Va. 鈥淭hey are reluctant to make investments to bring back people to work unless they have firm orders in hand.鈥�
On Friday, this reluctance was quantified in the May employment report when the US Bureau of Labor Statistics reported that the private sector added only 41,000 jobs, far fewer than Wall Street had been expecting. The best job creators were manufacturing (up 29,000 over April), temporary-help services (up 31,000), and mining (up 10,000).
Normally, small business is a major job producer. But according to a survey by the National Federation of Independent Business (NFIB), most firms did not change their employment in May. For those who did, 8 percent increased employment by 2.4 employees, while 20 percent decreased their workforce by four people.
Why are small businesses reluctant to add workers?
鈥淲eak sales, weak sales, weak sales,鈥� says William Dunkelberg, chief economist for NFIB, which has many small-business members. 鈥淲hen you hire someone, they have to generate enough sales to cover the expense of hiring them, or you are in trouble.鈥�
Some of the engines of growth for small business are just not running smoothly, Mr. Dunkelberg says. Consumers are not spending at their normal levels. Housing, although it has improved compared with last year, is not leading the economic recovery.
鈥淭here is so much uncertainty, you don鈥檛 want to commit to hire anybody,鈥� he says.
The US Chamber of Commerce, which represents larger corporations, says a lot of the uncertainty for its members is Washington-generated.
鈥淭ell me what my taxes will be as a company,鈥� says Bruce Josten, the chamber鈥檚 executive vice president for government affairs in Washington. 鈥淣o one can tell me.鈥�
For example, he says, Congress failed to extend the research and experimentation tax credit, which expired last December.
鈥淭he R&E tax credit has been on the books for 30 years,鈥� says Mr. Josten.
The House, he says, has passed legislation (the American Jobs and Closing Tax Loopholes Act of 2010) that is raising taxes on multinationals, retroactive to Jan. 1. It has also hiked taxes on capital investments made by Subchapter S corporations, which are normally small companies that pass their profits to shareholders but don鈥檛 pay federal income taxes.
In addition, the House has passed higher taxes for venture-capital funds, hedge funds, and private-equity funds. The legislation has yet to pass the Senate.
It鈥檚 not just taxes, says Josten. Businesses are still unsure how much the new health-care reform bill will cost them, he says. 鈥淢any companies are finding their premiums are rising,鈥� he says. 鈥淐ompanies like some certainty on fixed costs.鈥�
The uncertainty is starting to freeze business decisionmaking, says one economic development executive in the Southwest, who preferred to speak on background.
鈥淲e have been inquiring about what鈥檚 going on, and one of the clear messages about the slow pace of investment is because of the administration鈥檚 policies,鈥� he says.
However, one longtime employment observer says the slowdown in private-sector hiring is just part of the ups and downs in the economy.
鈥淲e want a straight-line recovery, and it won鈥檛 be that way,鈥� says John Challenger of the outplacement firm Challenger Gray & Christmas in Chicago. 鈥淲e are in a three steps forward, two steps backward mode.鈥�
Until it鈥檚 clear the economy has a healthy head of steam, he says, that鈥檚 a natural reaction. 鈥淵ou don鈥檛 want to hire someone and then have to let them go 鈥� it鈥檚 painful.鈥�
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