Are businesses sitting on their money in the hope of a change in the regulatory regime (i.e. an Obama loss in 2012)?
Marylin Geewax brings us the following story about the overall economic picture. And it isn’t pretty:
The latest surveys show that both business owners and consumers have been losing confidence in the U.S. economy. That pessimism is just the latest blow to hopes for a speedy recovery.
Last week, even Federal Reserve officials said they have grown more pessimistic about the economic outlook this year. The policy makers cut their forecast for 2011 to a growth rate of just 2.7 to 2.9 percent — down from their April estimate of 3.1 to 3.3 percent.
Economists say growing pessimism and a lack of confidence tends to depress spending. Chris Christopher, an economist with the forecasting firm IHS Global Insight, says the large cash reserves corporations are holding are evidence that our budding optimism is fading.
I’d only ask, “what budding optimism”? Most who’ve been following the so-called “recovery” have seen little, in terms of economic indicators to elicit “budding optimism”. As we discussed in yesterday’s podcast, part of the problem, in fact a big part of the problem is the unsettled regulatory regime. Businesses have no idea where the administration is going with regulations, but what they’ve seen thus far provides them with no incentive to expand and hire and every incentive not to do so. Consequently:
U.S. corporations have about $1.65 trillion in cash available to them, he noted. But managers are so wary about the near-term outlook that they are not spending that cash on hiring workers or expanding operations.
And that brings us to another factor one can’t help think is at least beginning to have an effect as well. As we approach the second half of 2011, the 2012 presidential election looms. Are businesses now factoring in the possibility of change in the White House (real change we could live with) and holding back until that’s settled? It is certainly something that would make sense. With the administration’s war on business these past two plus years, there’s no reason to commit to expanding a business or hiring new employees if doing so is going to end up being a net negative. So why not wait and see? Sit on the cash and have it ready to use if and when the current administration is shown the door and a less draconian regulatory regime is on the horizon?
That’s common sense business.
Of course that’s not the only reason business is hanging back. There are other factors:
Other concerns involve a spring slump in manufacturing activity and the ongoing problems in real estate. For example, last week, a report from the National Association of Realtors showed existing home sales fell again in May, down 3.8 percent to a seasonally adjusted annual rate of 4.81 million units, the lowest rate in six months. Even worse, the median price was down 4.6 percent from a year earlier.
Consumers, whose spending accounts for roughly 70 percent of all U.S. economic activity, also lost confidence this spring as gasoline prices rose to nearly $4 a gallon in early May and unemployment ticked back up last month. The unemployment rate had gotten down to 8.8 percent in March, but was back up to 9.1 percent by May.
All of that in combination have businesses reticent to do what is necessary to help the recovery. I just wanted to bring the other factor - unsettled regulatory regime – to the fore as it simply doesn’t get the coverage it deserves. Draconian regulations which cost businesses high compliance costs are a drag on economic expansion. The possibility of relief from such a regime is a legitimate reason to not expand or hire and incur those increased compliance costs. As I’ve said any number of times, the government can help the economy best by getting the hell out of the way. Instead it seems the inclination is to meddle and intrude even more and, as should come as no surprise, this sort of non-recovery “recovery” is the result.
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