Hitting Bottom

PA Employers say recession has ended, predict improving economy

Pennsylvania’s business climate has ended a three year slide, but although it has yet to rebound from the national economic recession there is optimism that process will begin over the coming six months. That is the key finding of the Lincoln Institute’s Spring 2011 Keystone Business Climate Survey of business owners and employers throughout the commonwealth. The survey also found that while sales are improving, businesses have yet to begin expanding their workforces.

After years of steady decline, the businesses participating in the survey say economic conditions in Pennsylvania have stabilized. A halt in the economy’s decline is good news, but the state’s business climate remains mired at its lowest level in the 17-year history of the poll. A plurality of respondents, 46% say business conditions are the same now as they were six months ago; 25% say conditions have improved while 28% say the economy has gotten worse.

A year ago, 43% of business owners said the state’s economy was getting worse, while just 13% felt it had improved. The September 2010 Keystone Business Climate Survey produced nearly identical numbers with 42% saying the economy had gotten worse and 17% saying it had improved. The current polling numbers suggest those on the front lines of the state’s economy feel the recession has bottomed out, although they are not yet experiencing any significant improvement in economic conditions.

There has, however, been a turn-around in optimism about the near term future. Thirty-eight percent of the survey participants say they expect business conditions in Pennsylvania to improve over the coming six months compared to 29% who anticipate they will get worse. This is the first time since the September 2004 survey that more respondents predicted the economy would get better rather than worse. Pessimism hit a low point in the September 2008 poll when 50% projected a declining state economy and only 13% felt it would improve.

But, that optimism has yet to manifest itself in the creation of new jobs. Fifty-six percent of those responding to the Lincoln Institute survey say employment levels at their businesses are the same as they were six months ago. Twenty-two percent say they are employing more people now than they did six months ago, and 22% say they are employing fewer people now than six months ago. That could change over the coming six months: 29% say they expect to increase the number of people they employ, 17% predict they will cut jobs.

The rebound in sales has already begin, although marginally. Thirty percent say sales at their company increased over the past six months, while sales were down at 29% of the businesses. That is a significant improvement from a year ago when only 21% reported an increase in sales and 52% said sales had declined. There is considerable optimism for the coming six months as 47% forecast an increase in sales and 15% anticipating a sales decline.
There was a significant increase during the past year in the number of companies considering moving operations out of Pennsylvania. Ten percent of the respondents in the current survey said over the past six months they have considered moving some of their operations out of Pennsylvania. That is up from the 4% who reported having considered moving in the Spring 2010 survey. Twelve percent say they may move some of their business operations out of Penn’s Woods during the coming six months.

Job Performance Ratings

President Barack Obama continues to suffer the lowest job approval rating of the elected officials tested in the poll. Sixty-eight percent hold a negative view of his performance in office with 27% approving. Those numbers, however, represent an improvement from six months ago when 74% gave him a negative rating. Federal Reserve Chairman Ben Bernanke received a 44% negative rating with 35% saying they approve of the job he is doing handling the U.S. economy.

United States Senator Robert P. Casey, Jr. continues to receive negative marks for his job performance: 46% disapprove of his job performance while 26% approve. Although still in negative territory, those numbers reflect a significant improvement from six months ago when just 16% approved of his job performance, and 62% disapproved. A plurality, 46% have yet to form an opinion of U.S. Senator Pat Toomey who has been in office for only a couple of months. Of those with an opinion, 31% gave him a positive job approval rating with 23% offering a negative view of his performance in office.

Governor Tom Corbett debuts with a 44% job approval rating by the state’s employers with 30% expressing their disapproval. Auditor General Jack Wagner sports a 25% approval rating against a 7% disapproval rating; 15% approve of the job being done by state treasure Rob McCord while 9% disapprove.

Approval of the job being done by the federal and state legislative bodies has improved, but remains overwhelmingly negative. Seventy-seven percent disapprove of the job being done by the United State Senate with 13% giving the upper chamber a positive rating. A year ago 90% disapproved of the job being done by the senate. Likewise, the U.S. House of Representatives has seen its negative rating drop from 90% to 74%. Seventeen percent approve of the job performance of the lower chamber.

At the state level, the state senate’s job approval rating stands at 14%, with 68% voicing disapproval. That is a marginal improvement from the 72% who disapproved of the job being done by the state senate a year ago. The disapproval rating for the Pennsylvania House of Representatives has dropped from 77% a year ago, to 67% in the current poll. Sixteen percent approve of the job being done by the state house.

Issues

The Commonwealth of Pennsylvania currently faces a $4.5 billion budget deficit. Governor Tom Corbett has proposed a no-tax hike budget that relies heavily on spending cuts, particularly in education, to bring it into balance. Fifty-seven percent of the business leaders participating in the Spring 2011 Keystone Business Climate Survey said they approve of the governor’s proposed 2011-2012 state budget; 37% disapprove. Reacting to the governor’s proposed cuts to higher education, 43% said the cuts are about the right amount, 36% said the cuts are too high, and 15% feel the cuts should be deeper. In terms of state subsidies to K-12 public schools, 44% termed the proposed cuts "about right," 37% said they are too deep and 11% said the education cuts are not deep enough.

Respondents to the Lincoln Institute poll say they disapproved of the state government’s current approach to economic development. Twenty-four percent said the commonwealth should continue its practice of providing financial aid and tax breaks to selected businesses, but 69% said that policy should be abandoned in favor of broad-based tax cuts for all businesses. Sixty-six percent agree with Governor Tom Corbett’s proposal to eliminate and or consolidate programs within the Department of Community and Economic Development; 26% disagree. Eighteen percent of the businesses surveyed said they have utilized a DCED program to locate or expand their Pennsylvania operations, 75% have not.

Two highly controversial proposals received strong support from the employers who participated in the survey. Seventy-seven percent supported privatizing the state liquor store system, 56% saying they strongly favor privatization. Eighteen percent said they oppose placing the state’s liquor sales in private hands. On the issue of collective bargaining by public employees, 60% of those polled say public employee unions should not have collective bargaining privileges; 33% believe they should.

Generally speaking, 54% of the business leaders say they support school choice, giving parents of public school children a voucher to send their child to a private, non-religious school; 41% disagree. A slight plurality, 49% would extend that voucher option to school with a religious affiliation; 46% disagree.

The area of biggest disagreement between the business leaders and the policies outlined by Governor Corbett centers on the placement of additional taxes on companies drilling in the Marcellus Shale Reserve. Fifty-eight percent said they disagree with the governor’s refusal to levy new taxes on the natural gas industry while 31% support his no new tax position.

In dealing with the impact of the economic recession, 50% of the employers surveyed said they have had to lay off employees. Forty percent have had to reduce work hours. Fifteen percent report closing or consolidating facilities; eight percent have reduced product lines; 33% have raised prices while 30% have cut prices. Three percent report they have closed their business.

Methodology

The Lincoln Institute’s Spring 2011 Keystone Business Climate Survey was conducted electronically during the months of March and April 2011 with a total of 136 employers participating in the poll. Of that number, 54% report they are the owner of their business; 28% are the CEOOO/CFO; 7% the local manager and 3% the state manager. Complete numeric results of the survey can be viewed at www.lincolninstitute.org.