Moderated by Rick Badie
Today, we address economic pressure points that can stall consumer spending and job creation. A small-business advocate writes about the slowdown in hiring by Georgia businesses and why many are reluctant to add workers. Meanwhile, an economic forecaster says the Great Recession’s aftermath continues to constrain job growth and worker wages.
Wary business owners
By Kyle Jackson
Officially, the Great Recession lasted 18 months and ended four years ago, but we still haven’t gotten back to where we were before things went south.
One sign of that is the unemployment rate. The U.S. average was 7.4 percent in July — better than it was at the height of the recession, but well above the 4.4 percent jobless rate we had before the downturn. Things are worse in Georgia. Our seasonally adjusted unemployment rate for August was 8.8 percent.
Usually, small business plays a big role getting people back to work. It represents 99.7 percent of all employers and employs nearly half of the private-sector workforce, according to the latest numbers from the Small Business Administration.
But small business isn’t hiring.
Recently, the National Federation of Independent Business released the results of its July Small Business Economic Trends survey. It said small-business job growth is flat as a pancake. The survey found that:
• More respondents still think general business conditions will be worse than better in six months.
• Only 9 percent think it’s a good time to expand.
• Owners rank taxes and government “red tape” as the most important problems facing small businesses.
You’re not going to buy a new delivery truck if sales are down. You’re not going to hire if you don’t think you’ll have money to pay the new hires.
Look at things from a business owner’s perspective: You’re the boss. You sign the checks. You invested your life’s savings to start the business, and you’re on the hook if things don’t work out.
You have members of Congress who want to raise the personal income tax. What a lot of people don’t realize is that a majority of small employers are incorporated as S corporations. They pay their business taxes at the appropriate personal income rate.
You’re not going to invest in your business if you don’t know what’s coming down the pike.
Then you have the Affordable Care Act. It includes a provision called the health insurance tax, or HIT. It’s a tax on insurers, but the Congressional Budget Office says the insurance companies will simply jack up premiums rather than absorb additional cost.
Self-insured employers will be exempt from the HIT. That means the HIT is aimed squarely at small businesses like yours.
Then there’s a tidal wave of new rules and regulations. President Barack Obama’s most recent Unified Agenda shows 3,500 regulations in the pipeline; 700 will affect small businesses to one degree or another.
You’re not going to buy a new or used car if you think there’s a chance you’ll get laid off soon. Small-business owners in Georgia and elsewhere look at things the same way.
If Washington is serious about getting the economy back on track, it will stop threatening and cajoling small business with higher taxes, increased labor costs and excessive regulations. Simply put, Washington needs to get out of the way so Main Street can create jobs.
Kyle Jackson is Georgia state director for the National Federation of Independent Business.
Wage gains remain flat
By Patrick Newport
The U.S. labor market has been steadily improving since turning around in March 2010. The economy is adding nearly 200,000 private-sector jobs each month. Initial claims for unemployment insurance recently fell to a five-year low, and the unemployment rate dropped from 10.0 percent in late 2009 to 7.4 percent today.
But job growth remains too slow. The unemployment rate has fallen for good reasons (more jobs) and bad (people leaving the labor force). Other measures indicate the job market is still in sad shape.
Unsurprisingly, real wage gains have been minimal in recent years. According to the Bureau of Labor Statistics, the real hourly wage has hardly moved since early 2007. Behind this flat trend are more troubling ones: Earnings at the lower end of the income distribution have fallen, while earnings at the upper end have risen. The median-income worker has fallen further behind.
In “This Time Is Different: Eight Centuries of Financial Folly,” authors Carmen M. Reinhart and Kenneth Rogoff showed that a recession caused by a systemic financial crisis takes much longer to recover from than one caused by other sources. They cautioned in 2009 that the latest downturn, like those of 1873, 1892, 1907 and 1929 that also originated in the financial sector, would be long and protracted. Unfortunately, their projections have so far been on the mark.
Short of inflating the economy, the Federal Reserve did about as much as could be expected to jump-start the economy. What about fiscal policies? Princeton economist Paul Krugman has been saying for years that, for the economy to get back on track, public spending must step in and fill the vacuum left by a lack of private demand. Equally prominent economists, such as Jeffrey Sachs of Columbia and N. Gregory Mankiw of Harvard, have warned that short-term stimulus packages are wasteful and lead to deeper debt.
What most economists would agree on is that de facto policies, which range from political gridlock and kicking the can down the road to the federal spending sequester, have slowed growth. According to our model of the U.S. economy, the sequester will cut GDP growth by half a percentage point in 2013.
The labor market is still in bad shape. However, it is improving, and we are more than halfway over the hump. Here is a sketch of how we expect the rest of the recovery to unfold. In the third quarter of this year, real per capita GDP will hit its previous peak last reached at the end of 2007. In the third quarter of 2014, payroll employment will reach its previous peak of January 2008. In late 2015, the unemployment rate will drop below 6.5 percent, and the Fed will start raising interest rates.
And in 2018, the jobless rate will drop below 5.5 percent — full employment, at last.
Patrick Newport is director of long-term forecasting at IHS Inc. in Lexington, Mass.