All Revved Up and Stymied

 | Nov 07, 2012 | 2:30 PM EST  | Comments
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With the U.S. presidential election over, it seems as though some uncertainty might lift. But gridlock remains and, for many businesses, reason for caution still abounds, as the fiscal cliff might not be resolved this year. As a reminder, the "fiscal cliff" is the $600 billion in tax increases and spending cuts that begins January 2013. The nonpartisan Congressional Budget Office says it could send the U.S. economy into a recession if it is not resolved.

Will Congress successfully address the issue in the lame-duck session, or will it simply postpone the debate into the future? Or will the U.S. go off the cliff entirely? We just don't know for sure, though we can guess.

Businesses, however, tend not to like "guessing." That means decisions to hire, invest or expand get postponed or sidelined until clarity arrives on those fiscal issues. Yet, with Congress still divided between a Democratic Senate and a Republican House, will any bills even get through to the president?

How long, moreover, will gridlock remain? We hope it will end long before the U.S. reaches the fiscal cliff, but I have my doubts. If businesses have concerns, they may cut back before that occurs -- and we can in fact see this via surveys.

In the Business Roundtable's third-quarter CEO Economic Outlook Survey, the results index sank to 66 from the prior quarter's 89.1. According to the report, this was "the lowest reading since the third quarter of 2009 and the third largest single quarter drop in the survey's history."

Politics were to blame, according to the group, particularly relating to poor visibility of action in a gridlocked environment. 34% of CEOs plan to reduce employment in the next six months, while 29% plan to add to staff. In the second quarter, 20% planned to reduce staff, while 36% planned to add jobs. That's a big swing -- going to a net 5% of planned cut jobs from a net 16% planning to add them.

Small businesses were only a shade more optimistic, and still concerned about gridlock. In a press release, the National Federation of Independent Businesses summarized its members' views: "Few employers continue to think the current period is a good time to expand. The percent of owners viewing the current period as a bad time to expand due to political uncertainty reached a new record high for this business cycle at 22%."

While those surveys were taken before the election, they nonetheless represent the biggest political challenge businesses see: inaction. We still do not have any further clarity on what will happen to taxes or spending. The political divide continues as gridlock remains. The election hasn't changed that.

That is a shame, because consumers have been revving up their engines. For the economy to be off to the races, though, businesses must get the green light to go ahead with their own plans to hire and grow. Consumers' mood has improved to highs last seen several years ago, and they are spending more on discretionary, durable goods. Businesses are hiring more -- but, arguably, they would do even more if the future weren't still so cloudy.

What we need is for lawmakers to set aside their differences and come to a solution. I'm not even so sure that it has to be the absolute best solution, just as long as it is "good enough." We need to remove the guesswork for businesses about whether the fiscal cliff will be resolved and, if so, how. Consumers are quite ready to power the economy ahead. We just need Capitol Hill to give businesses the confidence they need to step on the accelerator.

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