Recession Continues: PA business climate remains sluggish

Federal Reserve Board Chairman Ben Bernanke says the economic recession has ended. Somebody, however, forgot to tell businesses in Pennsylvania. Results of the Lincoln Institute’s 2009 Keystone Business Climate Survey found 92% believe the recession continues, and 62% say the state’s economic climate has gotten worse over the past six months.

Businesses polled by the Lincoln Institute also have a strongly negative opinion of the recently enacted Pennsylvania state budget, although job performance ratings for Governor Ed Rendell and for both houses of the General Assembly improved slightly from the spring survey.

The Keystone Business Climate Survey asks those on the front lines of the Pennsylvania economy for their view of business conditions. Seventy-one percent of respondents to the poll are business owners, 17% are the chief executive officer, chief economic officer or chief operating officer while the balance are state or local managers.

State Budget

Eighty-three percent of the respondents said they disapproved of the new state budget, with 49% expressing strong disapproval. Seventeen percent approved of the new spending plan, with only 1% saying they strongly approved. In particular, the delay in the phase-out of the Capital Stock and Franchise Tax (CSFT) was cited as a negative development. Sixty-six percent said the delay will hurt the ability of Pennsylvania businesses to create new jobs.

A leading concern over the new budget is the failure of the General Assembly and the governor to cut state spending after having run a $3.2 billion deficit last year. Seventy-one percent of the poll respondents said the $400 million cut in spending was too small. When reminded of the $3.2 billion deficit, the number saying the cut was too small rose to 86% with 7% saying the cut was about right and 3% saying the cut was too large.

On the revenue side of the ledger, the businesses surveyed voiced strong disapproval of the use of the Rainy Day Fund to balance the new state budget. Seventy-percent disagreed with spending down the Rainy Day Fund, with 46% saying they strongly disagreed. Twenty-seven percent said they agreed with tapping the fund. There was also strong disapproval over use of the MCARE (medical) fund as 68% said those dollars should not have been spent to balance the general fund budget while 20% agreed with the move.

Legalization of table gaming, however, proved to be a popular move within the ranks of the business community. Fifty-four percent said they agreed with the legalization of table games, while 43% did not. Fifty-five percent also voiced support for the increase in cigarette taxes, while 41% were in opposition.

The actions of state government are viewed with significant importance by business operators. For better or worse, 64% believe state government has the biggest impact on Pennsylvania’s business climate. Thirty percent think the federal government has a bigger impact and 5% view county or local government has having the most significant impact.

There is also a strong view that state economic development spending does little to stimulate the economy. In fact, 66% believe such spending is actually harmful to the state’s economic climate. Thirteen percent feel state economic development spending is helpful, and 11% think it has no impact.

In terms of the economic recovery, 88% of those participating in the Lincoln Institute’s Fall 2009 Keystone Business Climate Survey said the economy has not yet improved to the point where they will hire additional workers during the coming three months. Only one percent indicated they planned on hiring additional workers during the coming quarter.

Likewise, 85% said they will not be investing in capital improvements over the next three months such as expanding or building new facilities. Seven percent plan to do so. More companies, 16% say they will invest in machinery or equipment purchases between now and the end of the year, although 69% say they will not.

As a result of the economic recession, 71% of the businesses say they have had to reduce employee work hours, 49% have laid-off employees. Forty percent have cut prices while 14% have raised prices. Nine percent have had to reduce product lines and 5% have closed or consolidated facilities.

The top business concern of poll respondents is lost sales, 48% cited that as their chief concern. Twenty-one percent said taxes are their top concern while 20% cited the cost of health care coverage, 7% said energy costs and 5% said access to credit.

Trends

In general, 62% of those businesses participating in the Fall 2009 Keystone Business Climate Survey say business conditions in Pennsylvania have gotten worse over the past six months. That actually marks an improvement over the spring survey when a historic high of 76% said business conditions had gotten worse. Twenty-nine percent in the current survey said business conditions are about the same as they were six months ago. Eight percent felt business conditions have improved over the summer and early fall, that is up from the 4% in the spring survey who viewed the economy as having improved.

But there is a growing pessimism about the future. Looking ahead six months 34% say they expect the business climate in Pennsylvania will get worse – up from 29% who predicted worsening conditions last spring. Nineteen percent expect the state’s business climate to improve over the coming six months, but that is down from the 22% who forecast improving business conditions in the spring survey. A plurality, 45% expect the state’s business climate to remain the same over the coming winter months.

Forty-two percent of the businesses polled said that employment levels at their company are down from six months ago. That is the exact same number that reported declining employment numbers in the spring survey. Five percent report having added employees over the past six months, up 1% from the spring poll. Forty-nine percent say employment levels have remained about the same. Looking ahead six months, 22% are projecting lower employment levels with 13% saying they expect to hire more workers. A majority, 60% say they see employment levels remaining constant.

Decreasing sales continue to be a problem for Pennsylvania businesses, although the rate of the drop has slowed. Fifty-six percent say sales were down over the past six months. In the Spring 2009 Keystone Business Climate Survey 62% had reported declining sales. Looking ahead six months, an identical number 28%, forecast rising sales and declining sales with 38% expecting sales to remain about the same.

Job Approval Ratings

Despite the 101 day budget stalemate job approval ratings for both Governor Ed Rendell and for the Pennsylvania General Assembly improved over the past six months. That having been said, the numbers for both branches of state government remain overwhelmingly negative.

Seventy-Five percent of respondents to the Lincoln Institute’s poll have a negative view of Governor Ed Rendell’s job performance. Six months ago his negative rating stood at 86%. Fourteen percent give the governor a positive job review, up from 11% last spring.

The biggest improvement in job approval ratings came for the Pennsylvania House of Representatives. It’s positive job approval rating moved to 12% from 8% last spring, and its negative rating dropped from 77% in the spring of 2009 to 62% in the current survey. Likewise the Pennsylvania State Senate saw a drop in its negative rating from 66% last spring to 57% in the fall while its positive rating rose slightly from 16% to 17%.

A majority of respondents had no opinion on the job performance of the three statewide elected constitutional officers, the attorney general, auditor general and state treasurer. Of the three, Attorney General Tom Corbett is the most well known. His positive job approval rating stood at 32% coupled with a 16% unfavorable rating. Thirteen percent disapprove of the job being done by Auditor General Jack Wagner, while 13% approve of his performance. State Treasurer Rob McCord has been in office for only a few months, but thus far is receiving negative reviews as 14% disapprove of the job his is doing and 3% approve.

Respondents to the 2009 Keystone Business Climate Survey expressed strong disapproval of the job performance of President Barack Obama. Eighty-one percent give the new chief executive a negative rating compared to 12% with a positive view. U.S. Senator Arlen Specter posted even worse numbers with 88% disapproving of his job performance and 5% giving him a positive rating. U.S. Senator Robert P. Casey, Jr. received a 66% negative rating against a 10% positive rating. Federal Reserve Board Chairman Ben Bernanke received the highest job approval rating – 21% – with 52% disapproving of his job performance.

Election Match-Ups

If the primary election for Governor of Pennsylvania were held today 64% of the Republicans responding to the poll would cast their vote for Attorney General Tom Corbett, 21% would vote for Congressman Jim Gerlach and 15% for State Representative Sam Rohrer. Among Democratic respondents, 67% said they planned to vote for Auditor General Jack Wagner in the upcoming primary, 25% for Scranton Mayor Chris Doherty and 8% for Montgomery County Commissioner Joe Hoeffel. Allegheny County Executive Dan Onorato and Philadelphia businessman Tom Knox received no votes.

In the race for the U.S. Senate Congressman Joe Sestak out-polled incumbent U.S. Senator Arlen Specter 38% to 20% among surveyed Democrats, while former Congressman Pat Toomey was the choice of 65% of Republicans with Johnstown activist Peg Luksik receiving 6% of the vote.

Methodology

The Lincoln Institute’s Fall 2009 Keystone Business Climate Survey was conducted electronically from October 5, 2009 thru October 20, 2009. During that time 173 members of the business community responded to the poll. Complete numeric result can be viewed [L=https://www.lincolninstitute.org/archives/surveys/2009FBCS.php]here[EL].