Business uncertainty seeps into 2012

Uncertainty over the economy, much of it political, is leading businesses to hold back on hiring and investments in their companies despite increased profits. 

A new report issued Monday by S&P Valuation and Risk Strategies estimated companies on the S&P 500 will likely pay essentially the same amount of taxes in 2011 as in 2008, a finding that suggests profits are returning to pre-recession levels. 

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Yet these companies are not hiring. The S&P report comes on the heels of a deeply disappointing report that found the economy created only 54,000 jobs in the month of May. 

The jobs report prompted Democratic strategist James Carville to say President Obama faces a difficult reelection fight if the jobs numbers do not improve. 

“If 54,000 new jobs is the new standard, it’s going to be a very, very rough 2012 for President Obama,” Carville said Monday on the Don Imus radio show. “I can’t tell you what’s going to happen, but if this last jobs number is an indication of future jobs numbers, it’s going to be very, very rough.”

The lack of hiring by companies has frustrated Obama, who has called on corporations to reinvest profits on their balance sheets into new plants and shifts of workers. 

The S&P report is also far from the only evidence that big corporations are in good health right now: The S&P research arm has found that S&P 500 companies saw a nearly 20 percent rise in earnings growth in this year’s first quarter, and that those companies now have more than $1 trillion on their balance sheets. 

But for a variety of reasons — healthcare costs, the regulatory environment, the economic unrest in Greece and, perhaps most importantly, the negotiations in Washington over raising the nation’s $14.3 trillion debt ceiling — large businesses appear unwilling to substantially expand their job force.

Michael Thompson, the managing director of the S&P research team, said companies were likely sitting on cash because they believed that was the best way to protect their shareholders. He added that corporations were almost certainly looking to see what sort of deal is reached to raise the debt ceiling — and how that might hurt or help them. 

“The thing about private-sector companies is, they’re not emotional,” Thompson said. “Corporations are artificial beings, and their No. 1 priority is taking care of their shareholders.”

Whatever the reasons, businesses’ hiring practices, and the economy in general, will almost certainly play an outsized role in the 2012 presidential race. 

The president signaled Friday that “headwinds” like the tsunami in Japan and disruptions in the Middle East had played a large part in the worse-than-expected May jobs numbers.

Austan Goolsbee, the chairman of the White House Council of Economic Advisers, echoed that assertion, saying that “one month is not a trend.” At press time, Goolsbee announced he is leaving the White House to return to the University of Chicago.

Republicans blame Democratic policies for the poor jobs numbers, saying job creators felt overtaxed and overregulated. The poor numbers have emboldened Republicans to think they can defeat Obama, who despite the poor economy has favorable approval ratings and faces a GOP field generally seen as weak.

Rep. Eric Cantor (R-Va.), the House majority leader, said Monday that he believes Obama will be defeated next year. “The American people are witnessing a president who may make good speeches, but doesn’t deliver, and right now the issue is jobs and the economy and from every small-business person that I speak to, they’re complaining about Washington standing in the way,” Cantor said.

Economists from both sides of the aisle say that there is concern that the economic recovery is not creating more jobs.

Martin Regalia, the chief economist for the U.S. Chamber of Commerce, has signaled that he believes temporary factors weighed down May’s job numbers and that he expects figures to eventually return to around 200,000 net new jobs a month, which the economy averaged between February and April. 

But he also suggests uncertainty surrounding the debt talks is hurting economic growth. 

“What you have to do is kind of strip away some of the distractions,” Regalia said on ABC’s “This Week” over the weekend. “The leading distraction right now is the debt ceiling.”

The Treasury Department says the debt ceiling needs to be raised by Aug. 2, and key Republican lawmakers have signaled that any deal needs to cut spending more than the ceiling is raised. Vice President Joe Biden and a bipartisan group of lawmakers are trying to hash out a deal. 

Chad Stone, the chief economist at the Center on Budget and Policy Priorities, is concerned a deal could further hurt the economy.  “I am worried that they’ll come up with a contractionary way to deal with deficit reduction,” said Stone, who favors some stimulus for the economy. “But I also don’t see a non-contractionary way to deal with deficit reduction other than waiting until the economy is stronger.”

The S&P research group reported Monday that the S&P 500 will likely pay more than $301 billion in cash taxes in 2011. That would be a roughly 17 percent increase over 2010’s total of around $257 billion, and almost equal to the 2008 figure of more than $302.6 billion.