Recovery? PA Employers Say Economy Remains Sluggish

Despite the conventional wisdom that the nation is emerging from a four-year economic downturn, results of the Spring 2012 Keystone Business Climate Survey find employers in the commonwealth less optimistic than they were one year ago – and fewer expect the business climate to improve in the coming months. The survey also found a majority favor further cuts in state spending, particularly on public welfare. There is also broad-based support for placing strict limits on the rate at which state spending can increase in the future.

When asked if business conditions in Pennsylvania are better, the same, or worse than they were six months ago, 17% reported improved conditions while 30% said business conditions had gotten worse. A majority, 51%, said business conditions had remained about the same. A year ago the survey found 25% saw business conditions improving, with 28% saying they had gotten worse. There was a slight uptick in the November survey, but the numbers slipped backwards again in the current poll.

Looking ahead six months, 16% of the business owners and chief executive officers participating in the poll said they expect Pennsylvania’s business climate to improve, while 26% expect a further deterioration in the economy. Response to that question was considerably more pessimistic than a year ago when 38% forecast improving business conditions, and six months ago when 22% felt conditions would improve.

The number of companies operating with fewer employees again outpaced those that had added jobs over the past six months. Twenty percent said employment levels at their business are lower than they were six months ago while 13% reported employing more people. Sixty-six percent said the number of employees at their place of business remained about the same over the past six months. A year ago, the Keystone Business Climate Survey found employment up at 22% of the companies and down at 22%. The November survey found a return to negative territory and that trend continued in this spring’s survey. Going forward there is a bit of optimism: 16% expect to add employees over the coming six months while 13% say they will employ fewer workers. But again, those numbers are down from a year ago when 29% forecast growing their workforce and 17% predicted job cuts.

Another area of concern for employers is sales. Thirty-five percent said sales at their company have decreased over the past six months while 28% reported increased sales. Thirty-seven percent said sales were static. A year ago, the numbers were more positive with 30% having reported sales increases and 29% decreasing sales. Looking ahead six months, 32% remain optimistic that sales will increase, while 20% say sales will decline.

Despite the generally poor business conditions in Pennsylvania relatively few companies have moved from the commonwealth. Less than one percent said they have moved some of their operations out of the state. But, not one single company surveyed reported having moved any operations into Pennsylvania from another state. Five percent said they are considering moving some operations from Penn’s Woods, while another 4% are considering moving all their operations elsewhere.

Job Approval Ratings

President Barack Obama has never received good job performance ratings in the Keystone Business Climate Survey. But, the bottom fell out in the current poll. Eighty-nine percent of those polled have a negative view of the President’s job performance while just nine percent gave him a favorable review. A year ago, 27% had a favorable opinion of the President’s job performance while 68% expressed negative views. Federal Reserve Chairman Ben Bernanke fared only slightly better in the current poll with 59% disapproving of his job handling the nation’s economy while 19% approved. U.S. Treasury Secretary Timothy Geithner earned a 7% job approval rating with 68% disapproving of the job he is doing.

Conversely, U.S. Senator Pat Toomey saw a significant increase in his job approval rating. Forty-seven percent said the state’s junior senator is doing a good job, while 23% expressed a negative view. Six months ago Toomey was upside down in his rating with 38% expressing disapproval and 28% approving. Senator Robert P. Casey, Jr.’s numbers are headed in the opposite direction. Eleven percent of the employers surveyed approve of the job he is doing in the U.S. Senate, 62% disapprove. That is a drop from six months ago when 17% approved and 54% disapproved of how he is handling his job.

At the state level, Governor Tom Corbett’s approval numbers have remained relatively stable over the past year. The Spring 2012 Keystone Business Climate Survey found 48% approve of the job the governor is doing, with 32% registering their disapproval. A year ago, 44% gave the governor positive marks while 30% disapproved of how he was handling his job. A large majority of respondent offered no opinion on the job performance of Pennsylvania State Treasurer Rob McCord and Auditor General Jack Wagner. Of those who did, 19% gave Wagner a positive review with 15% negative. Fourteen percent hold the job being done by Treasurer McCord in a positive light, and 16% expressed disapprove of his job performance.

Employers participating in the survey continue to hold strongly negative views of the job performance of the legislative branches of the federal and state governments. Congress is held in especially low esteem. Only 5% credit the U.S. Senate with doing a good job, 92% view the Senate negatively. Twenty-four percent approve of the job being done by the U.S. House of Representatives, 71% disagree. At the state level, 22% give positive marks to the senate, with 56% disapproving. The Pennsylvania House earned the best rating among the legislative chambers, although that is faint praise with 26% approving and 53% disapproving of the job being done by our state representatives.

State Budget

Last year Governor Tom Corbett and the General Assembly passed a state budget that held the line on both spending and taxes. Respondents to the Spring 2012 Keystone Business Climate Survey say they didn’t go far enough. Fifty-nine percent said when the new state budget is enacted this June spending should be cut further. Thirty-six percent said the current rate of spending is about right, while just 3% felt state government should increase taxes and spending.

Among the areas of proposed budget cuts is spending in the Department of Public Welfare. This department includes programs such as Children and Youth Services, cash assistance such as food stamps and medical benefits to low income recipients and funding to nursing homes. Spending in this area has increased over 50% in the last nine years. Ninety-two percent said they support cutting the Department of Public Welfare budget – 65% strongly supporting such cuts. Eight percent disagreed.

In terms of which categories employers would like to see state budget cuts, public welfare was at the top of the list at 69% followed by human services (42%), prisons & corrections (41%), higher education (38%), health care (32%), economic development (24%), K-12 education (16%), and highways/transportation 8%.

Pennsylvania lawmakers are considering a law that would limit increases in government spending to the rate of inflation plus population growth. For example, if we had three percent inflation and one percent population growth government spending could increase no more than four percent that year. The limit could only be exceeded by a majority of voters in a referendum at election time or by vote of two-thirds of lawmakers in a declared emergency. Generally speaking, 77% of the employers participating in the poll said they support such a law – 38% are strongly in favor. Nineteen percent oppose such a law.

As for the new law permitting counties to levy taxes/fees on companies drilling in the Marcellus Shale region, 31% said the new tax is about right, 24% said the tax is not high enough, and 22% said no additional tax should have been levied on drillers.

Union Power Issues

The 2012 Keystone Business Climate Survey found strong support among employers for enactment of a Right to Work law, whereby a worker cannot be compelled to join or pay fees to a labor union as a condition of employment. Ninety-two percent support enactment of a Right to Work law – 85% strongly supporting such legislation. Seven percent were in opposition.

Currently, many school districts in Pennsylvania collect union dues via payroll deduction from the paychecks of teachers and other school district employees. Those dues are then transferred to union bank accounts. State legislators are considering a law that would require unions to collect these membership dues directly instead of relying on school districts and other governmental units to do so. Eighty-five percent of those polled support such a change in the law, with 73% strongly in favor. Seven percent disagreed.

Construction projects funded by tax dollars in Pennsylvania are subject to the Prevailing Wage law, which essentially requires union level wages to be paid on all such projects. When asked whether the current system of Prevailing Wage should be kept, or whether market conditions should be allowed to set labor rates, 91% voiced support for a switch to market rates, while 8% supported keeping the current system.

Reform

With a parade of former high ranking legislative leaders headed off to prison, a number of proposals have been suggested to reform the General Assembly. When asked which reforms they would support 63% said there should be a requirement for legislators to provide receipts when being reimbursed for expenses; 54% favor reducing the size of the General Assembly; 51% think legislative pensions should be eliminated; 39% would make the legislature part-time while 27% would limit sessions to 90 days each year. Another 45% voiced support for all of the proposals.

The General Assembly is considering a plan to end the state’s liquor store monopoly and place distribution and retail sales of wine and spirits in private hands. Eighty-four percent of the business chieftains agree with that idea, 61% strongly so. Twelve percent disagreed.

Methodology

The Spring 2012 Keystone Business Climate Survey was conducted electronically from April 20th through April 24th. A total of 324 business owners, CEOs, CFOs, state and/or local managers participated in the survey. Complete numeric results can be obtained at www.lincolninstitute.org.