Obi-Wan Kenobi
/ 83.5.246.* / 2009-12-03 22:45
Although third quarter real Gross Domestic Product growth will likely be over three percent (a stunning improvement from the six percent shrinkage in the first quarter, the surge has not shown up on Main Street as of yet. Reported capital spending was at a survey-low level (started in 1973). More firms plan more inventory reductions than plan to invest, and more owners plan to trim their workforce than plan to increase employment. Quarterly reports on sales reveal 41 percent experiencing declines compared to 21 percent reporting quarterly gains. Quarterly profit trends are the worse in survey history, with 50 percent reporting declines compared to 14 percent reporting gains.
And, owners are not looking for a lot of improvement. About 40 percent expect real sales volumes to decline in the coming months in contrast to about 25 percent expecting gains. Only seven percent think the current period is a good time to expand, near the survey low. Credit markets are expected to remain difficult for those wanting to borrow, but with inventory investment and capital spending plans near historic lows, it is clear that loan demand (not the supply of credit) is weak. Legislative activities in Washington undoubtedly dampen the outlook with talk about health care mandates, cap and trade, card check, and new taxes on all sorts of goods and services. Many will wonder if it is worth the effort to try to grow the firm.
Now, some in Congress are considering “Stimulus II”, which may take the form of a jobs tax credit similar to that enacted in 1976-77. Some feel this was a successful program, creating new jobs. But it is likely that “government job creation” is an oxymoron. Such a program does not pass a simple “smell test” of logic. Even a minimum wage worker costs about $20,000 (all in). For example, who would spend $20,000 to get a $5,000 credit if there were no use for the worker (e.g. the worker could not generate more than $15,000 in revenue to cover the cost of hiring). Firms will not hire people to just stand around, and cannot pay workers more than the revenue they generate for the firm. With weak consumer demand, more workers are apparently not needed and owners are not hiring. A jobs credit
will not bring in more sales.
Such a program, if passed, would be the “cash for clunkers” program for the job market. Hiring might be delayed in anticipation of the program if it is proposed in Congress and debated for a period of time and, unless prevented, might induce some firms to release workers and re-hire them as “new.” Such a program will involve red tape and complex formulas to compute credits, and most if not all of the money will be paid for workers that would be hired anyway. All this would not induce many consumers to increase their spending, the top need identified by business owners. Labor is cheap, customers are needed. Maybe giving the money to consumers would be simpler. When consumer spending picks up, firms will have reason to hire.