The economic recovery is 2 years old this month. Isn’t that reassuring? I didn’t think so. As recoveries go, this one is as blah as it gets. Judging by the most recent indicators, we may be headed for a double dip, or perhaps a period of flatlining that feels just as bad.
Job growth is sluggish and unemployment is again on the rise. In the first three months of this year, the economy slowed substantially, from a 3.1 percent pace at the end of 2010 to a growth rate of only 1.8 percent.
Consumer spending is lackluster, thanks to stagnant wages and high fuel prices. Confidence remains low ― and it took another hit last week: Americans learned that the value of their homes ― for many, their largest investment ― once again sagged.
Why is this economy taking so long to get moving? I can point to two reasons. One, this recovery is getting no help from housing, which is typically the sector that perks up first as interest rates fall when the economy slows.
But the bigger factor is an extraordinarily high level of economic uncertainty, for which the Obama administration deserves the major share of blame.
The mood was captured in a recent column by Yale law professor Stephen Carter.
Carter recounted a conversation he had with a businessman who had mentioned that even though his firm was profitable, he wasn’t hiring. Carter asked why. The man’s reply: “Because I don’t know how much it will cost. How can I hire new workers today when I don’t know how much they will cost me tomorrow?”
Bull’s eye.
Much of American business is sitting on a cash hoard. The biggest companies, those listed on the Standard & Poor’s 500 index, have amassed a pile close to $1 trillion. To some, this idle pile is cause for outrage ― further evidence that corporate America is evil incarnate. In this view, companies are passing up opportunities to grow, profit and hire out of sheer spite.
Yet the level of economic uncertainty is higher than at any time I can remember. I don’t know any way to quantify this, but consider what businesses are facing right now.
There’s an ongoing battle over the deficit, a struggle that implies higher taxes if the Democrats win and something else ― something still inchoate ― if the Republicans prevail.
We won’t see a beginning of the end to the struggle over health care until we learn the results of next year’s election. If President Obama is defeated, the law, or major sections of it, will be repealed. But it’s impossible to know how any of this will come out.
More immediately, there’s the worry over pending regulation, which the businessman voiced to Stephen Carter. The health-care law authorized a mountain of new rules, which have already begun to stream out of Washington. Ditto for rules mandated by the Dodd-Frank financial reform law, which has many banks wondering how much they will be able to loan.
A lot of this bank uneasiness is flowing down to business in the form of tight credit ― a big reason so many companies are sitting on cash.
“They don’t know where their capital will come from,” said economist Chris Kuehl of Kansas City, Kan.-based Armada Corporate Intelligence. “In the past, they would assume that if they needed money they’d get in a line of credit. Now they’re very uncertain that will ever be the case again. Now they think they need to keep cash on hand. ... A lot of businesses have brought that cash to levels up with where they had a line of credit.”
That’s not the end of it. The cap-and-trade climate bill died in Congress, but the administration plans to accomplish many of the goals of that legislation through regulation ― unless they’re somehow stopped by Congress.
When Obama came into office, he had a choice: Clear the decks and work on jobs and the economy, or stick with his original program of legislative bloat. He chose No. 2, and on present evidence, it was too much for American business to absorb so soon after a major credit crisis.
Business is caught like deer in the headlights, unsure how to respond.
By E. Thomas McClanahan
E. Thomas McClanahan is a member of the Kansas City Star editorial board. ― Ed.
