Thu., December 6, 2012 5:00pm (EST)

Businesses, Not Consumers, Sour On Economy
By Yuki Noguchi
Updated: 2 years ago

When it comes to the economy, consumers and business owners have very different takes right now. Consumers are feeling positive, but the mood among businesses is at recession levels.

In a word, business owners are bummed.

"What we've found is that a lot of that optimism is not there right now," says Dennis Jacobe, chief economist for Gallup, which polled these small business types just after the election.

A third of businesses surveyed said they plan to cut back on spending in the next year. One in five say they'll be reducing staff. That's the highest percentage of business owners planning layoffs since the survey started a decade ago.

Jacobe says a big reason is the fiscal cliff those automatic tax hikes and spending cuts that will take effect starting next month if Congress doesn't act to change it.

"Small business owners face some of the things that are in the fiscal cliff right now in terms of as they set up their payroll for next year," Jacobe says. "There are a bunch of things that business owners have to think about as we're so close to the new year that the fiscal cliff brings home to them."

Take Ray Gaster, president of a lumber company in Savannah, Ga., where the housing market is rebounding. Gaster had planned to hire three more workers to his staff of 31.

"Right now, we put some hiring decisions on hold because of the uncertainty up in Washington, D.C., and we're not sure what kind of effect that's going to have on housing and the general economy," Gaster says.

In the short term, he says, he's pessimistic. And though he's found good candidates, he doesn't want to hire them only to lay them off again.

Lynn Franco, a director at the Conference Board, which surveys both businesses and consumers, says consumer sentiment has been going up in recent months.

"Consumers seem less focused on the fiscal cliff at this point, and therefore we see a divergence in sentiment," she says.

Franco says consumers are looking past the still high unemployment rate to a stock market that's done relatively well this year and a housing market that's begun to recover. She also says business sentiment plummeted to recessionary levels during the debt-ceiling negotiations last year, then rebounded fairly quickly, so perhaps the same will happen if Congress and the White House can hammer out a deal over the fiscal cliff soon.

Bruce Lackey, president of Happy Chicken Farms near Columbus, Ohio, says he anticipates business taxes will increase next year regardless of whether we reach the fiscal cliff or not. So he frontloaded a lot of big-ticket investments like trucks and equipment to this year to take advantage of relatively low tax rates.

"Now I'm not going to have to purchase those for the next year and a half to two years," says Lackey.

Lackey is reasonably upbeat. His business has fully rebounded from the recession and is growing as the Ohio economy improves.

"If your business goes up and you need people, you're going to hire them," says Lackey.

And if sales improve, slightly higher taxation levels won't keep him from hiring more people next year.

On Friday, the Labor Department will issue its jobs report for November and provide a new read on how the economy is doing.


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