Small Matters: Pessimism reigns in business surveys

Posted: November 21, 2011

Our federal debt has now topped $15 trillion, a record 57 percent of households characterize current economic policy as "poor," and only 7 percent say it is "good."

In fact, there is really very little in the way of positives as people and businesses peer into the future.

Confidence in the Federal Reserve has plummeted - by 60 percent, according to the University of Michigan consumer-sentiment survey. Consumers are clearly concerned about the future, afraid that we will fall back into recession.

Nearly 90 percent surveyed expect the unemployment rate to be unchanged a year from now. Less than 25 percent expect business conditions to improve, and only 40 percent think this is a good time to buy durable goods, big purchases such as appliances.

Consumer spending showed a bit of energy in recent months, but it was funded by a decline in savings, not growth in incomes. That's not a healthy way to support an expansion. With all of the government debt problems in Europe, the likelihood that the region falls into recession grows, and this would mean that our exports to Europe (and the jobs they support) will be at risk.

Small-business owners remained pessimistic, with more than 25 percent reporting weak sales as their top business problem. The October survey of the National Federation of Independent Business indicated 5 percent of owners think the current period is a good time to expand their operations.

Eighty-one percent of the 350,000 businesses belonging to NFIB expected conditions to be no better or even worse in the next six months. Thirty-nine percent expect their real sales volumes to fall, and just 23 percent expect improvements in their businesses.

With such a dim view of the future, it is no surprise that more owners plan to reduce employment than to increase it - 12 percent to 9 percent. This is bad news for the already struggling labor markets. The forecasts for reducing inventories, ordering more goods, or making capital outlays are all grim.

More spending by America's six million employers would certainly give the economy a boost, as we head into the holiday shopping season, but this does not seem likely to occur.

It doesn't appear that we will get a convincing package of cuts from the congressional supercommittee by Thanksgiving. If nothing is done, everyone's taxes go up in 2013, as the so-called Bush tax cuts expire, while our debt climbs toward $16 trillion.

The health-care legislation is now before the Supreme Court, creating more uncertainty about a law that affects every consumer. Europe seems likely to fade, even to have a recession. U.S. banks will be adversely affected if European governments start defaulting on their debts, and there will be financial volatility. A weak Europe will buy less from U.S. producers - not helpful to our prospects of getting our economy out of its persistent sluggishness.

Recent measures of U.S. economic performance have been somewhat encouraging, but housing remains the largest drag on the economy, with employment there down more than two million from the peak before the recession in late 2007.

For now, the best thing to nurse the economy is for Washington to do its job: Get spending and borrowing under control, fix the tax code, and restore consumer confidence.


Bill Dunkelberg is a professor

of economics at Temple University and a nationally recognized expert on small business. Contact him at dunk@temple.edu.

Read more of his columns at www.philly.com/dunkelberg

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