U.S. Job Creation Hurt By Policy Uncertainty: Fed Paper

Small businesses would hire and invest more if Washington offered a clearer idea about plans for taxes and government spending, researchers at the Federal Reserve Bank of Cleveland said on Tuesday.

Measuring the impact of policy uncertainty has long dogged economists. The question of its impact is particularly relevant now because measures of uncertainty have spiked in recent years.

The issue also colors the political debate on the regulation of banks and the healthcare market, and whether to extend tax cuts that could prop up economic growth next year.

The Cleveland Fed researchers used an index that measures uncertainty by the amount of newspaper coverage on the topic, as well as how many tax policies will expire in the coming year absent action and how much forecasters disagree on future government spending and inflation.

This index, they found, correlated tightly with small business plans to hire and invest, as measured by data from the National Federation of Independent Business going back to 1986. The NFIB data was used because it signals broader economic trends in employment and investment.

"While the downturn and weak recovery certainly had a large negative effect on small business hiring plans, policy uncertainty has exacerbated this effect," researchers Mark Schweitzer and Scott Shane said in their report.

The percentage of businesses planning to hire would have been 6 points higher in the summer of 2011 if not for the effects of uncertainty, they found. The toll on capital expenditures, which include investments in equipment and buildings, was similar.

The policy uncertainty index, which goes back to 1985 and was developed by economists at Stanford University and the University of Chicago, rose to an all-time high over the summer as a budget debate in Washington brought the government close to the brink of being unable to pay its bills.

The index also has spiked around presidential elections and the two U.S. invasions of Iraq during the period.

Schweitzer and Shane said their research should serve as a warning to policymakers, who critics say have shirked their responsibility to make tough decisions about long-term policy.

"Policymakers should take seriously the widespread anecdotal reports that policy uncertainty is adversely affecting small business owners' expansion plans," the report concluded. (Reporting by Jason Lange; Editing by Kenneth Barry)

Copyright 2011 Thomson Reuters. Click for Restrictions

Comments

[phatemu]

05:10 PM on 11/30/2011

BS

Anti-Americanism is 'killing job growth'.

Uncertainty my butt.

[MyDawg1967]

08:46 AM on 11/30/2011

Small businesses hire only when they need the extra staff to deal with the DEMAND for their products and or services, period. The notion that businesses are waiting on the govt. to do something is a complete farce. The American economy is consumer driven, not govt. driven, no demand no business expansion.

[BassMonk]

03:26 PM on 11/30/2011

Exactly right. The article states that hiring may have been 6% higher, if not for the uncertainty.

I also noticed that the "researchers" found a correlation and drew a cause-and-effect relationship from it, which is completely invalid, as any student in Statistics 101 would learn.

[pwright433]

08:21 AM on 11/30/2011

Duh!!!!!! They needed a research project to tell them this? Businesses have been saying this since Obama came into office. There is no leadership or direction from Washington. What is the tax rate going to be? What is with the heath care plan? How is everything going to be paid for? Obama care costs were undercounted by 2.7 Trillion. How is that going to be paid? Obama is trying to raise my taxes so I have no ability to budget in another employee when I don't have any idea what my realized income will be.

[MyDawg1967]

08:38 AM on 11/30/2011

Are you suffering from amnesia?

Bush's Job Growth WORST in 50 Years
http://www.freerepublic.com/focus/news/1551102/posts

Bush bragging on historically weak job growth
http://www.epi.org/publications/entry/ib237/

Job growth under Bush was worst since WWII
http://jacksonville.bizjournals.com/jacksonville/stories/2009/01/19/daily7.html

Job Growth Where Bush Didn’t Want It
http://www.nytimes.com/2008/02/09/business/09charts.html

Comparing job growth among presidents
http://voices.washingtonpost.com/ezra-klein/2010/05/comparing_job_growth_among_pre.html

[pwright433]

09:10 AM on 11/30/2011

To put this in perspective. During GWB years a total of 188,000 jobs were created. This includes the 3.8 milion jobs that were lost at the end of 2008, as a direct result of the liberal housing crisis created by Barney Frank and Chris Dodd.

To date Obama admin has lost 2.9M private sector jobs.
In other words for every private sector job GWB created Obama has lost 29.

[SanFranciscoDad]

05:04 AM on 11/30/2011

I've owned a small business for nearly 19 years and government policy has NEVER factored into a business decision. That's a luxury only large, publicly traded companies can afford -- and even then it's a sign of a second rate management team.

The HEADLINE ON THIS ARTICLE IS WRONG. The headline would have us think government policy is causing small businesses to hold off creating jobs. But according to the article itself there's a "relationship between high uncertainty and job growth". Duh! But this has nothing to do with what is actually causing the impact on job growth. In case you missed this in the article:

"This index, they found, correlated tightly with small business plans to hire and invest, as measured by data from the National Federation of Independent Business going back to 1986."

"Correlated tightly" means that some other factor is causing both of these measure to move somewhat together. It's like claiming that increases in the sale of sun screen is depressing the sale of heavy wool coats! It might be a fact that the sale of sun screen increases when the sale of heavy wool coats go down -- both are more likely effected by it being summer and temperatures rise in summer months.

HuffPo IS turning into Fox!

[edmundavolio]

08:07 AM on 11/30/2011

SFDad, I submit that the reason small businesses aren’t hiring is because there is no prosperity in the US today. And with 20 million unemployed, the prosperity needed for small businesses to hire will never return. Until Congress requires products SOLD in the US be made with the same Congress mandated costs for MADE in the US, small businesses will not save the US Economy. What I am saying will hold true until 90% of products for sale in retail stores are no longer made offshore.

[ram6968]

03:50 PM on 11/30/2011

I don't know what you THINK is holding this economy together, but it's SMALL businesses

[pwright433]

08:42 AM on 11/30/2011

Policy is a factor that any business should consider before hiring. Hiring someone it is usually a long term commitment. First to the employee who will stop seeking work on a promise that you would employ them. Secondly, to the company since they have to train, pay emp. taxes, healthcare, state taxes and benefits.
The poilicy in Washington is all over It is hard to make any long term commitment. Considering government policy when making business decisions such as hiring is not a luxury or a sign of second rate management. It is a sign of responsible management. Not to consider the political atmosphere would be down right irresponsible.
What would happend if I went out and hired 25 sales people, and 25 plant and office personel, and didn't consider the costs that Obama Care would impose (and it is no coincidence that Obamas political donors have all been granted exclusions to Obama Care) or the fact that my after tax income in 2013 will be heavily deminished (I am not in business to create jobs rather than to make a good living). Now I am broke because I didn't plan accordingly. Now I have to lay off 50 workers and on top of it I am saddled with debt. And that is if we knew what Washington was going to do. Not even having an educated guess because the administration is all over the board only makes it even harder to make those decisions.

[MyDawg1967]

08:49 AM on 11/30/2011

You use the word "policy" but I'd wager you couldn't cite a single one if your life pended on it.

[edmundavolio]

12:14 PM on 11/30/2011

Policy would not be such a big obstacle if products SOLD in the US were required to be made with the same policies required of products made in the US. Hopefully all other impediments being equal also.

[Kai-HK]

02:37 AM on 11/30/2011

This is a no brainer. Policy uncertainty is making matters worse for America.

[MyDawg1967]

08:39 AM on 11/30/2011

Then it's been uncertain for the last decade cause Dubya netted ZERO job growth.

[pwright433]

09:34 AM on 11/30/2011

GW had nearly 4 million private sector jobs created in the first 7 years. The last year the were 3.8 milion lost due to mortgage derivatives (housing crisis, bank crisis) with a final tally of 188,000 jobs.
Obama has lost 2.9 million since that time.

29 jobs lost under Obama for every job created under Bush

[Kai-HK]

07:51 PM on 11/30/2011

That happens when you have Fed-created back-to-back recessions, combined with 9-11, SARS, Bird Flu, etc., you have a countervailing job loss effect that offsets the jobs created. Thsi was not due to policy uncertainty but rather a straighforward policy fail....a monetary policy fail.

Kai

[LynnW49]

01:25 AM on 11/30/2011

Like I trust any branch of the Fed Reserve to deal an honest hand.
Tell you what, boys. You open that discount window for me and I'll take a few million at .5% and lend it back to the government at 3%. Then everything will be pretty damn *certain*.

[klinzboy]

01:21 AM on 11/30/2011

None of this cluster farce should be news to anyone:

http://www.youtube.com/watch?v=rPh-qGcYruw

[JohnGault3]

12:13 AM on 11/30/2011

It took a Fed Paper to know this? Everyone knows this.

[Twohairydogs]

10:55 PM on 11/29/2011

This just in: the sky will probably be blue tomorrow.

[cadawa]

10:04 PM on 11/29/2011

Uncertainty is the disingenuouds whine of the 1%. They can manage very nicely (profits are higher than ever and they are sitting on mountains of cash) with givng away jobs to foreign nationals by providing them with visas (all the while they are going at the public school system hammer and tong) and exporting US jobs to countries where slave labor and environmental degradation are the norm.
Congress agrees. For well over a decade, under both political Parties, Congress has done nothing to stop the hemorrhaging of US jobs and resources. They have ratified every lousy, job stealing, revenue losing trade deal. The 1% and their errand boys in government are well on the way to making the whole nation an inner city of discarded lives and unwanted labor.

[LynnW49]

01:26 AM on 11/30/2011

Yep.
Those mountains are trillions. Uncertainty my butt.

[ibsteve2u]

09:31 PM on 11/29/2011

"This index, they found, correlated tightly with small business plans to hire and invest, as measured by data from the National Federation of Independent Business going back to 1986."

lolll...I am reminded of the fact that pulling up historical graphs and trying to use them to predict the future is what suckers do in the stock market.

[joebaggadonuts]

09:28 PM on 11/29/2011

The article says expansion plans, which might include hiring. It does not appear to use the words job creation. Where do they come up with these titles, a Republican play book?

[webwzrd]

09:10 PM on 11/29/2011

Funny, but recent studies from both the Treasury Dept and CBO BOTH conclude that DEMAND is the main reason by far that small business is not hiring. A recent poll by the National Small Business Association, which is a conservative business lobby ALSO concluded that demand was the main reason. I get the feeling that Cleveland may be more conservative than the rest of the nation.

[BBackSoon]

09:28 PM on 11/29/2011

You put it much better than I would have. And I could not agree more!

[joebaggadonuts]

09:28 PM on 11/29/2011

Ohio is home to what is formerly known as Diebold, the voting machine maker.

[iridium53]

09:31 PM on 11/29/2011

Which is how Boehner and Kasich win.

[webwzrd]

09:32 PM on 11/29/2011

aaahhhh... I see, said the blind man.

[Ty Thompson]

09:01 PM on 11/29/2011

It's not any sort of uncertainty that's stopping jobs, it's those things that are certain. The government and fed will continue to bail out and favor large corporations, which are nearly all reducing their workforce. The few increases are at smaller businesses, only as sales dictates because of the "uncertainty". Small businesses know they will be screwed over and end up paying for all the perks handed out to the large corporations, they just don't know how yet. Once the how is set forth by federal, state and local governments, they will invest in markets that are not FUBAR due to the hows.

[pwright433]

08:55 AM on 11/30/2011

And politicians continue to bail out the larger businesses because that is where the money is. They are the companies that donate to the political campaigns and who employ the union dregs of society

[ivanhoemb]

08:39 PM on 11/29/2011

"Small businesses would hire and invest more if Washington offered a clearer idea about plans for taxes and government spending, researchers at the Federal Reserve Bank of Cleveland said on Tuesday."

Hmmm. Ya think? Somebody needs to interrupt our President's campaign trips and explain this to him.

[joebaggadonuts]

09:30 PM on 11/29/2011

There are three branches creating uncertainty by refusing to agree to a plan that helps America. OWS!

[BBackSoon]

09:31 PM on 11/29/2011

Wow what a stupid comment.

The Pres can make clear his plans, and no mater what his plans are, the Repubs will do their damnedest to block them. Even if the plans were first put forth by Repubs themselves.