Has Business Executive Optimism Faded?

Member Group : Allegheny Institute

(May 8, 2012)–In the Lincoln Institute’s Spring 2012 Keystone
Business Climate Survey –
executives/managers were asked about the current business
conditions facing firms in the Commonwealth. They were also asked to
compare the current climate to six months ago as well as about their
expectations for the next six months. Survey responses reveal a
distinct lack of enthusiasm about the current state of the economy or
the prospects for the near future.

When asked if business conditions in Pennsylvania had improved over
the last six months and the likelihood of improvement in the next six
months, a majority of the respondents indicated they believed
conditions have not changed (51 percent) or are about to change (57
percent). Meanwhile, only 17 percent believed things had improved
and only 16 percent believe the economy will improve over the next
six months. This represents a marked contrast to last spring’s
responses when survey takers were more optimistic about the immediate
future with nearly 40 percent looking for improving business

The current less optimistic view may reflect actual business
conditions as 37 percent of respondents indicated that their
company’s sales had stayed the same over the last six months and 34
percent indicated that they had gotten worse. These results point to
some weakening compared to last spring when 39 percent reported sales
had either remained the same and 29 percent said sales had gotten

The lack of improvement in sales has filtered to their views on
employment. Two-thirds of respondents indicated that employment
levels had remained the same over the last six months and nearly 70
percent indicated that scenario will likely persist over the next six
months. Meanwhile, only 16 percent expected to bring on more
employees and only 13 percent had more employees than six months
earlier. Again a more subdued attitude compared to a year ago when
only 55 percent of respondents indicated that employment had remained
the same and 51 percent expected hiring to remain flat. Also,
optimism regarding greater levels of employment was higher a year ago
when 30 percent thought they would be adding employees.

So what might be behind this retreat in optimism? Overwhelmingly,
respondents pointed the finger at national economic policies. The
U.S. Senate (92 percent), President (89 percent), U.S. House (71
percent) and Treasury Secretary (68 percent) each received very high
negative ratings opinions as did the Fed Chairman (59 percent). This
represents a worsening over last year’s negative scores for all but
the U.S. House (73.6 percent). Additionally, state level officials
did not escape the negative opinions as 56 percent and 54 percent
viewed the State Senate and House negatively although this represents
an actual improvement over last year’s opinion (68 percent and 67
percent respectively). The Governor’s negative rating rose somewhat
from 27.6 percent in 2011 to 32.4 percent in 2012.

Of course pointing fingers at public officials is one thing, but
there are issues these business executives would like to see
addressed by these officials to improve the business climate and
ultimately improve the economy.

At the state level, these business executives showed no appetite for
an increase in state spending or tax increases with only a handful
thinking that doing so was in the best interest of the Commonwealth.
A majority of respondents indicated that the upcoming budget should
contain more cuts while a third indicated that the budget should hold
steady. Most votes favored cuts to public welfare, human services,
prisons/corrections, and higher education. Three-quarters of
respondents indicated they would like to see a law limiting increases
to government spending to the rate of inflation plus population
growth. Furthermore, the majority of respondents believe major
reform should come to the General Assembly through a reduction in the
number of members, cutting days in session and eliminating pensions.

Another issue these business leaders overwhelmingly agree on is the
need to address union power. Over 90 percent strongly favor or
somewhat favor the implementation of a Right to Work law in
Pennsylvania. In addition over 90 percent favor repeal of
Pennsylvania’s prevailing wage law.

In short, the Lincoln Institute’s survey of business leaders has
found a paucity of optimism about Pennsylvania’s economy. Indeed,
much of the optimism that was present in last spring’s survey has
dissipated over the last year. Respondents are placing the blame on
elected officials–and by inference poor policy decisions–both
nationally and at the state level. They believe major impediments to
a stronger recovery are union power and the high level of government
spending and taxation in the Commonwealth. Elected officials would
do well to heed these survey results.

Frank Gamrat, Ph.D., Sr. Research Associate

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