Tag: economic uncertainty

Small Business Owner Optimism Improves, But Stays Sub-Par

The National Federation of Independent Business said that small business owner confidence edged slightly higher to begin the new year. The Small Business Optimism Index rose from 88.0 in December to 88.9 in January. Nonetheless, it is hard to paint these figures in a positive light, particularly with low readings for three straight months. In October, the index stood at 93.1 before plunging to 87.5 in December. Recent gains still suggest sub-par levels of optimism, with owners remaining anxious about the economic and political environment.

There was a net percentage of 6 percent of respondents suggesting that the next three months were a good time to expand. Of those saying tht it was not a good time, economic and policy concerns were most pressing. Indeed, the most important problems — each garnering 21 percent of responses — were taxes and government regulations. The tax challenge that confronts many small business owners would be the higher tax rates faced by many of them resulting from the fiscal cliff deal. Poor sales were cited by 19 percent.

Many of the key indicators remain weak, even as some of them had marginal improvements for the month. For instance, the net percentage of those experiencing sales gains in January was -9 percent, a slight bit of progress from the -15 percent and -10 percent levels seen in the prior two months. Similarly, the percentage of respendents expecting the economy to improve stayed extremely low (-30 percent), and measures for earnings, prices, hiring, and capital spending continue to be sluggish.

Overall, the NFIB data indicate that small business owners remain pessimistic in January. Given the important role that small firms play in our nation’s economy, that is a troubling sign. Historically, Optimism Index readings of 100 or more were consistent with a healthy and growing small business sector, and we remain well below those levels.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Manufacturing Job Growth Remains Sluggish

In February, job growth in the manufacturing industry showed promise by adding 33,000 jobs, but also revealed areas where uncertainty has a dampening effect on job creation. Manufacturers still have a long, long way to go in the economic recovery.    

For the second straight month the vast majority of manufacturing jobs created in February were in the durable goods sector.

Manufacturers are concerned by a number of factors including higher energy prices, misguided federal regulations, and policies that do not support global competitiveness. Policymakers need to join with manufacturers to create an environment that encourages innovation and job creation.

Aric Newhouse is the NAM Senior Vice President for Policy and Government Relations.

Change in Manufacturing Employment

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Taxes, Small Business and Uncertainty

Two excellent commentaries on taxes, business and the economy…

Kevin A. Hassett and Alan d. Viard of the American Enterprise Institute wrote Friday in The Wall Street Journal, “The Small Business Tax Hike and the 97 Percent Fallacy,” demonstrating that the expiration of the 2001 and 2003 federal tax cuts on individual income would indeed hit small business. The “97 percent fallacy” is a reference to Vice President Biden and House Speaker Pelosi’s argument that the higher tax rates will only affect 3 percent of small business, so what’s the big deal?

The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That’s the number to look at, not the 3%. Would Mrs. Pelosi and Mr. Biden deny that the more successful firms owned by individuals in the top income-tax bracket are disproportionately responsible for investment and job creation?

At National Review’s The Corner, Veronique de Rugy, an economist and researcher at the Mercatus Center, makes the case that the temporary tax credits and rebates that the Administration favors to spur job creation are ineffective. For example, the $1,000 tax credit for hiring — which the President wants to boost to $5,000 — is useful only if a small business has a tax liability, much less likely given the current economic climate. In her post, “More on Small Business and the Administration,” de Rugy writes:

If the administration were so eager to help businesses, large or small, it would end the constant public-policy uncertainties that businesses are facing: The health-care overhaul, which will bring new but still unknown obligations to insure employees, and legislation aimed at tackling climate change, which could raise businesses’ energy costs, add to the uncertainty about the economy. The new financial regulation, which will take years to put in place, adds its share of uncertainty, as does the potential expiration of the tax cuts. Meanwhile, as government spending increases, so do the chances of more taxes in the future.

Her arguments about the deleterious effects of uncertainty dovetail well with the conclusions of the National Association of Manufacturers’ 2010 Labor Day report, “Labor Day 2010: The Impact of Anti-Labor Policies on Working Men and Women.

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Those New Manufacturing Jobs? Beware Uncertainty

Jim Geraghty of National Review Online posts an e-mail he received from a reader, prompted by Geraghty’s observations about employers who “are terrified of Congress enacting new health care fees, new energy costs from cap and trade, and/or tax hikes.” It’s an insightful e-mail:

I attended a luncheon at the Federal Reserve Branch in Houston where one of the speakers was the economist for the Federal Reserve – El Paso branch.

His presentation mainly concerned Houston and how the city was positioned given the current economic doldrums (thankfully he was optimistic that the city would emerge from recession earlier than the rest of the country); however a main portion of the presentation involved his expectations for a very depressed hiring market for the next 2-3 years, meaning unemployment would remain stubbornly high in the rest of the country.

During the Q&A session, I felt compelled to ask the obvious question: Did he believe that the healthcare reform and related tax proposals, the proposed cap and trade legislation and the consequent increase in energy costs, the expiration of the Bush tax cuts, the agitation for higher taxes on the wealthy, the proposal to increase corporate tax rates, the proposal to increase capital gains taxes, the trial floating of ideas such as a national VAT and removal of the earnings cap on FICA, the more robust regulatory bureaucracy . . . did he believe any of these uncertainties were depressing hiring?

He stated yes, without a doubt and proceeded to relay a conversation he had with a local chemical company regarding their 2010 capital expenditure budget. When asked what the company intended to invest in 2010, the response was ‘nothing,’ not due to a paucity of good opportunities, but because it was impossible for the company to calculate a rate of return given all the uncertainty over cost of labor, energy prices, regulatory mandates and the like. (continue reading…)

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