PA Business Climate Mired in Recession: But optimism surfaces that recovery could get underway soon

A third of Pennsylvania businesses are worried they will not be able to survive the recession, and access to credit is not the main reason for their concern. This as the Lincoln Institute’s Spring 2008 Keystone Business Climate Survey again found a record number of business leaders saying the state’s economy has gotten worse over the past six months.

The Keystone Business Climate Survey is a semi-annual poll of the people who actually run businesses – the owners, chief executive officers, or local managers for whom the economy is not something they talk about, it is what they do. And staying in business has gotten much more difficult. Seventy-six percent of the respondents said business conditions in Pennsylvania have gotten worse over the past six months. That is the most pessimistic result in the 15 years the Lincoln Institute has been conducting the survey. It surpasses the former most pessimistic result recorded in September of last year when 65% said the economy had gotten worse. A year ago, in March of 2008, 59% reported a worsening state business climate.

The good news, to the degree there is any, is that there is a growing sense that the worse may now be behind us. Twenty-nine percent said they expect the business climate to get worse over the coming six months. That is down from the 50% who forecast a worsening economy last September. Twenty-two percent actually expect the economy to improve over the coming six months, while 46% expect it to stay about the same.

Mirroring official statistics, respondents to the Keystone Business Climate Survey report employment levels have declined over the past six months. Forty-two percent report employing fewer people, while just 4% say the have increased the number of employees in their business. Fifty-four percent said employment levels have remained about the same. Again, the survey shows the worse may be over. The number of businesses expecting to employ fewer people during the coming six months is down to 13%, while 10% expect to add employees. Seventy-four percent expect employment levels to remain constant.

In order to deal with the current recession, 41% of the businesses said they have had to lay off employees, another 53% have reduced employee work hours. Raising prices was necessary at 30% of the businesses, while 27% said they have had to cut prices to remain competitive. Another 14% have reduced their product lines, 5% have closed facilities, and 1% reported going out of business entirely.

When asked about their top business concern Pennsylvania’s business leaders defied conventional wisdom citing lost sales rather than access to credit as the main reason for their difficulties. In fact access to credit trailed lost sales, high taxes, and access to health care for causing sleepless nights. Forty-two percent said their biggest concern is lost sales, 23% said high taxes are a problem, 20% said they are concerned over access to health care, while just 9% said access to credit was a major concern.

The degree to which lost sales are causing a problem was reflected in the fact 62% said their sales have decreased over the past six months, while just 13% reported an increase in sales. Twenty-four percent said sales had remained constant. There is a bit of a positive attitude looking ahead: 24% expect sales to increase over the coming six months while 49% say they forecast sales remaining about the same. Still, 24% are forecasting declining sales.

Job Approval Ratings

The poor state of the economy is reflected in job approval ratings for leading elected and appointed officials, most of whom received a strongly negative job performance rating from the business leaders who responded to the Lincoln Institute’s Spring 2008 Keystone Business Climate Survey.

Leading the list is President Barack Obama who received a 26% positive job approval rating, while 63% disapproved of his performance in office. He did well, however, when compared to Governor Ed Rendell who received a 75% negative rating while only 14% approved of his job performance. The state’s two U.S. Senators also fared poorly, especially U.S. Senator Arlen Specter. Specter received a 60% negative/24% positive rating; U.S. Senator Bob Casey scored a 54% negative/14% positive. The nation’s two top appointed fiscal officers also came in for criticism. Federal Reserve Board Chairman Ben Bernanke received a 49% negative/22% positive score, and U.S. Treasury Secretary Timothy Geithner fared even worse with a 63% negative/15% positive score.

Pennsylvania Attorney General Tom Corbett received the strongest positive job approval rating from the business leaders. He received a 38% positive/13% negative rating (49% undecided). Auditor General Jack Wagner scored a 14% positive/13% negative with 73% undecided. New State Treasurer Rob McCord starts out with a 7% positive/15% negative rating with 78% undecided.

As for institutions, survey respondents wished a pox on all their houses. Eighty percent have a negative opinion of the job being done by the U.S. Senate, and 83% disapprove of the job being done by the U.S. House of Representative. Meanwhile, back in Penn’s woods, 63% disapprove of the job performance of the Pennsylvania House of Representatives and 57% gave a negative rating to the Pennsylvania State Senate.

State Issues

Pennsylvania faces a current year budget deficit of over $2 billion and work is underway in Harrisburg on crafting a fiscal year 2009-2010 spending plan which must be approved by the end of June. Respondents to the Keystone Business Climate Survey are almost unanimously opposed to higher taxes, preferring lawmakers cut spending to balance the budget. Only one half of one percent of the respondents favored raising taxes, while 82% said the state should cut spending. Another 16% said a combination of tax hikes and spending cuts are needed.

A proposal by the Rendell Administration to allow counties to implement an additional 1% sales tax, in effect a sales tax increase, was opposed by 78% of those participating in the survey, 61% said they strongly opposed a sales tax hike. Twenty-two percent said they would support higher sales taxes. Raising taxes on tobacco products, however, received a thumbs up from 48% of the respondents, while 46% said they would oppose raising tobacco taxes.

Governor Rendell has also proposed implementing a 2% tax on health insurance premiums paid by business and consumers. If that happens, 39% of the business leaders surveyed said they will implement or raise employee co-pays, 16% said they will stop providing employer-paid health benefits, 7% said they would lay-off employees to compensate for the additional cost, and 3% said such a move would drive them out of business. Another 12% said such a tax would have no impact on their business. And, 21% do not currently provide employer paid health care coverage to their employees.

State policies are also having an impact on hiring. As a result of the recent increase in the minimum wage, 34% said they are less likely to hire additional workers. The minimum wage increase had no impact on 64% of businesses, many of whom already paid above that rate. A proposal to implement a limitation on CO2 emissions through a cap and trade program would hinder job growth. Forty percent said they will be less likely to hire new employees if a cap and trade program is imposed. Forty-eight percent said it would have no impact.

National Issues

The biggest issue for businesses across Pennsylvania and the nation is the so-called Employee Free Choice Act, also known as Card Check. Ninety percent of those responding to the Keystone Business Climate Survey said they oppose card check, 81% said they are strongly in opposition. Only 3% said they support the bill which would take away from employees the right to a secret ballot when voting on whether or not to unionize their workforce. If a Card Check bill is enacted by Congress 64% said it would make them less likely to hire any new employees.

There is, however, strong support 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. Eighty-nine percent of the respondents support enactment of a Right to Work Law, 72% strongly so. Only six percent oppose such a measure.

Pennsylvania’s business leaders are heavily skeptical of the economic policies of the Obama Administration. Sixty percent of the respondents say the policies of the Obama Administration will weaken the economy and prolong the recession, while 26% say his policies will strengthen the economy and cause the recession to end sooner. Seventy-Six percent have a negative opinion of the "economic stimulus" bill passed in February. There is also strong opposition to bailing out the auto industry as 86% say they oppose giving a bailout to General Motors and Chrysler.

Elections

In 2010 Pennsylvania voters will elect a new governor and will vote for a U.S. Senator. The governor’s race is wide open because incumbent Governor Ed Rendell is term limited and cannot seek re-election. This has resulted in competitive primaries for both the Republican and Democratic Party nominations.

Democrats responding to the Spring 2008 Keystone Business Climate Survey favored Pennsylvania Auditor General Jack Wagner with 29% of the vote. Allegheny County Executive Dan Onorato finished second with 24% of the respondents. Philadelphia businessman Tom Knox was favored by 18% of the participants responding as was State Senator Bob Mellow of Lackawanna County. Lehigh County Executive Don Cunningham received 12%.

On the Republican side, Attorney General Tom Corbett posted a wide lead over Congressman Tom Gerlach and former U.S. Attorney Pat Meehan. Corbett received 72% of the preferential vote compared to 18% for Gerlach and 10% for Meehan.

In what is shaping up as a hotly contested Republican primary for U.S. Senator, incumbent Arlen Specter was only able to muster support from 15% of the respondents, while challenger and former Congressman Pat Toomey was the stated preference of 64%. Peg Luksik received 5% of the vote. The poll was conducted after Specter announced he would not vote for cloture on the proposed Card Check legislation.

Methodology

The Lincoln Institute of Public Opinion Research, Inc. conducted the Spring 2008 Keystone Business Climate Survey electronically from March 27, 2009 until April 10, 2009. A total of 239 valid responses were received and tabulated in the survey. Complete numeric results of the survey can be obtained at [L]www.lincolninstitute.org[EL].