Free Markets, Free People

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.

~McQ

Twitter: @McQandO

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19 Responses to Are businesses sitting on their money in the hope of a change in the regulatory regime (i.e. an Obama loss in 2012)?

  • After 2.5 years of horrible financial news under Obama at least the MSM has seemed to stop prefacing more bad news with the word “unexpected”.  I think it is pretty plain to everyone that bad news is expected as far as the economy goes.    THose of us on the right have expected the worse and worse news pretty much since day 1 of the Obama regime.

  • Most private companies have business plans aligned with the calendar year.  If you plan to hire and expand, the costs, along with the justification, will be in that plan.  Plans are developed in the fall and submitted late in the year so that resources are made available in January.  Today, executives are outlining their 2012 plans.  What will health care cost?  Energy?  Will we be forced to buy new heating systems?  Will taxes go up to cover all this spending?  Will material costs increase with inflation?  What will EPA do?  If Obama wins, will he permit businesses to earn profits?  How can I justify investing in capital equipment of personnel with consumer confidence flat? 

    Right now, 2012 looks bleak.

  • This is spot on.  Businesses aren’t hiring because they have no idea what an employee will cost them in a year.  There is no way to budget new hires, because of regulatory uncertainty.  Hell, we still don’t know what the Healthcare Takeover means.  They are still discovering new gems in the bill, and I’m talking about the people who wrote it.

    • Exactly, who is for … “Stay the Course” ??
      Yeah, I really want to stay with the failed economic policies that have created no growth and a war on the private sector, that is waged every day by the pointy headed bureaucrats in DC.

      U.S. corporations have about $1.65 trillion in cash available to them

      Sounds just a bit short of the federal deficit … hmmm

  • The uncertainty is purely Obama’s fault??  I’d include the “repeal health care” chest thumpers who aren’t actually doing anything towards that end.  Also, health care costs have been rising 20% annually, well before Obama was elected to anything.

    • Tito:

      Your 20% annual increase is flat wrong.  Check the Congressional Budget Office and the Centers for Medicare and Medicaid.  Between 1998 and 2008, health care costs grew at 7.1%, but Medicare & Medicaid providers where capped at 6.8%.  Every year, Congress put in the “Doc Fix” to keep primary care doctors from dumping these two government programs.  If you have data to back up you claim, call the CBO.

      There are five cost drivers – technology, drugs, chronic illnesses, an aging population and administrative costs.  Obama Care taxes medical devices.  Is that helping reduce the cost?  No.  Ambulance chasing lawyers are all over the drug companies and the doctors.  Does that bend the cost curve?  Yes, upward!  There are cancers that were a death sentence but now are treatable. People are living longer and they want available treatments for curable conditions.  Twenty years ago, they would give you the bad news and tell you to put your affairs in order.  I just found out that I have an auto-immune problem.  It would have crippled me ten years ago.  Now I get a shot every two weeks.  The Federal Government is not known for reducing administrative costs. 

      Obama, Pelosi and Reid broke the best medical system in the world.  They own it.

    • I’d include the “repeal health care” chest thumpers who aren’t actually doing anything towards that end

      >>> With the Dems controlling the Senate and White House, what can they do for now but thump their chests?

      • Of course, my prediction is nothing Obama passed gets repealed. Perhaps tinkered with, but not repealed.

    • I saw Steve Wynn interviewed the other day. He said that they were self-insured and their medical cost for all his emplloyees ran about 8%. Once “Obamacare’ passed, which was supposed to bring down cost, it jumped to 12%.

  • I suggest something even more fundamental: the economy is in bad shape.  Why would people want to hire when their market is probably SHRINKING, not growing?  The left refuses to understand this: businesses don’t hire because they have money available; they hire because they have a need for more labor because they have (or, at least, believe that they have) an opportunity to expand their business.  The left might as well complain about these companies not spending their alleged cash reserves on new buildings or more raw materials or new equipment: if they don’t need those things, why on earth would they pay for them???

    Jebus, it’s not hard.

    • >sarc<Because it doesn’t matter if you need raw materials, or new buildings, you should buy them because it employs people.
       
      See?  Not that hard.
      >/sarc<
       
      I once marveld at an operator we had in the computer room who, I’m not sure jokingly, used to say the reason we bought the computer in the first place was so he could have a job.   I used to think he was kidding.

      • I once marveld at an operator we had in the computer room who, I’m not sure jokingly, used to say the reason we bought the computer in the first place was so he could have a job.   I used to think he was kidding.

        Oh, he wasn’t. As an IT manager for twelve years before Y2K, I found many in the IT field (lower echelon) felt the IT area was their sandbox and that it has virtually nothing to do with a businesses productivity. System were designed and built for their edification, not for the users.
        It seems that could be a blanket statement about the majority of American workers.
        How many managers/executives think the department/company is their plaything? How many run  a company for THEIR gain, not the owners/shareholders? (Not referring to entrepreneurs in that last one).

        • “System were designed and built for their edification, not for the users.”
           
          Still happening – if the users can manage to actually USE the system that’s been designed, well major success!   The days of asking the users what they need…shoot, I haven’t seen that for a long time.
           
          >scorn< But it’s all very high tech and cool and they got to play with new toys to do it!   It’ll look great on their resume when they change jobs in 6 months….>/scorn<
           
           
           

  • Businesses may not know the letter of any regulations to be implemented, i.e., “regulatory uncertainty”.

    However, with this Administration, the SPIRIT of each such regulation should be certain: it will raise costs, implement new taxes, impose additional paperwork and bureaucratic hurdles, or all of the above.

    To the folks inside the beltway, regulations create jobs because companies then have to hire more people to ensure compliance. I kid you not.

  • “down from their April estimate”

    What? Their consensus scientific forecast for the year is passe after only two months? Gee, if they are not careful they may damage their reputations as all-knowing masters of the financial universe.

  • Without regulations, we have increased hazards for workers and consumers alike.  But who cares, as long as the bottom line is maximized, and as long as our capitalists can go offshore to exploit workers where regulations are lax.
    Moreover, please do not neglect the lessons of recent history, that salaries have been decreasing for three decades, and that unfettered free markets produce bubbles and recessions.
    Why is this so difficult for you folks to understand?  Worse, please explain why you irrationally wish more of the same?
    You might wish to ponder this 2009 data from the US Census:
    <img src=”http://4.bp.blogspot.com/_5aAsxFJOeMw/TQJzZ7KgJcI/AAAAAAAADt0/mQ6Y5KQHHJs/s1600/2009-US-Personal-Income-Distribution-Age-15-Plus.png” height=”300″ width=350″ />
    It show, for example, that the income of an American at the 50 percentile is only about $27K, indicating the decline of the American Middle Class, and indicating the movement of income (and wealth) upwards.  This is unsustainable and will inevitably  lead to chaos.
    I don’t think you folks have yet admitted, or even digested this disastrous trend in our country.
     
     

    • First, the post centers on the rapid and capricious changes in regulations of the last few years (the vast majority of which had nothing to do with protecting the worker or the consumer), not eliminating is any valid regulation.

      Second. Yes, free markets go up and down, but they trend upward over time. Socialist markets eventually just go down. See results in Greece.

      Third – You have ignored the lesson of very recent history. The housing bubble was not caused by an absence of government oversight on the mortgage industry, but because the government intentionally interfered with the free market so that groups that were ‘underrepresented’ (because they didn’t qualify for loans based on objective criteria) would have mortgages made avaiable to them.