Uncertainty crippling the struggling economy

Uncertainties are crippling the U.S. economy, and there’s a good chance Thursday’s Supreme Court decision will add to the problem. 

U.S. businesses are stacking up profits on their balance sheets, but they’re not investing in new workers and plants. 

{mosads}The No. 1 reason is that executives just don’t see the demand, but this is compounded by policymakers in Washington and Brussels dithering over taxes and government spending, according to Wall Street analysts. 

None of this is good news for President Obama, who has had a good fortnight in the presidential race as the topic of discussion has switched to immigration. 

As the subject moves back to the economy and jobs, which it surely will do next week with  the release of a June jobs report, the weakness of the underlying economy will retake center stage. And fingers will be pointed at both the White House and Congress. 

Businesses in the United States don’t know when tax reform is going to become a reality, and they’re flying blind on what corporate or individual tax rates are going to look like in the near future. 

Defense firms can’t be sure whether major cuts set in motion by last summer’s debt deal are going to happen. 

In the long run, no one knows whether a major deficit-reduction plan is in the works. 

Neither Obama nor presumptive GOP nominee Mitt Romney has embraced the Simpson-Bowles plan, and neither have most members of Congress. A budget based on the plan received only 38 votes in the House this spring. 

If the Supreme Court upholds Obama’s healthcare law, it might provide a bit more certainty to businesses. 

But a poll of 56 former Supreme Court clerks found a majority expect the court to at least rule against the mandate that consumers buy health insurance, which would force Congress to address the law again and add to private sector uncertainty.

Even if the court does uphold the law, Republicans have vowed to continue efforts to repeal it, meaning new battles await after November. 

The situation might even be worse in Europe. An election in Greece this month kept that country in the eurozone but otherwise provided little certainty. 

“There’s this cloud of uncertainty just hanging on U.S. businesses,” said Andrew Busch of BMO Capital Markets. “It seems that politicians in the U.S. and E.U. are running the economy on a quarter-to-quarter basis.”

Busch travels frequently around the country to speak about the economy, and everywhere he goes he hears businesspeople worry about Europe, their tax rates and the future of the economy. 

Many of those he meets say they plan to hire within the next 12 months, but when they’re asked if they expect to be aggressive, they say no. 

“It’s really sad to me because … they all have cash on their balance sheets,” Busch said. “If they got any kind of certainty on the economy, they’d be willing to spend it. 

Sluggish jobs reports over the past few months bear out the weak economy, and next week’s report on June employment is likely to be more of the same. 

Mark Zandi, chief economist of Moody’s Analytics, expects the private sector to add 125,000 in June, almost twice what was added in the weak May report but not enough to significantly change the 8.2 percent unemployment rate. 

Others are less optimistic and put the rate of growth for the private sector at between 90,000 and 100,000. 

It might not be a bad enough report to hurt the president, who added to his troubles by saying the private sector was “doing fine” a week after May’s report.

But it won’t help Obama or businesses looking for signs of growth. 

The weaker job growth reflects “businesses’ heightened macroeconomic concerns over the fate of the eurozone and the fast-approaching fiscal cliff,” said Zandi. 

The fiscal cliff comes at the end of December, when individual tax rates and rates on capital gains and dividends are set to rise. Automatic spending cuts set in motion by last summer’s debt deal are also set to be implemented in January 2013, and Congress faces a decision on raising the debt ceiling. 

“Businesses remain very cautious, given the nightmare of the Great Recession, and it doesn’t take much to cause them to pull back,” Zandi said. “This would suggest that the job market and economy more broadly will be stuck in slow growth mode until European and U.S. policymakers take some definitive actions.”

There’s little chance any major actions in the United States will take place before the election, meaning it’s likely the economy will continue at its current pace over the next four and a half months. 

It’s a troublesome picture for the president.


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