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The Business Journals...
CEOs say government fiscal flux a black cloud over hiring, sales
by Kent Hoover, Washington Bureau Chief
Wednesday, June 20, 2012 

The CEOs of the nation’s largest corporations are dialing back their expectations for sales, hiring and capital investment -- and it’s largely Washington’s fault.

That’s the message from the latest survey of Business Roundtable members. The second-quarter survey found that 75 percent of big-business CEOs expect their sales to increase in the next six months, down 6 percentage points from their first-quarter expectations. The survey found that 43 percent of CEOs plan to increase capital spending, a decline of 5 percentage points. And only 36 percent of CEOs expect their companies will increase employment -- a decline of 6 percentage points. Twenty percent of CEOs expect their companies will lay off workers. 

Job cuts already are happening at aerospace companies, said Boeing Co    . Chairman and CEO Jim McNerney, who chairs the Business Roundtable. 

That’s because of $1.2 trillion in federal spending cuts that automatically will go into effect at the end of this year unless Congress finds an alternative solution to reducing the deficit. Half of these across-the-board cuts -- a process known as sequestration -- will occur in the defense budget. 

Large defense contractors, such as Boeing, “are taking actions today” to prepare for this potential lost revenue “because we can’t afford to just wait till the last minute,” McNerney said. 

“There’s no way to approach the prospect of sequestration without hedging a bet,” he said. 

Congress’ failure to decide what to do about tax rates that are automatically scheduled to go up Jan. 1 also is causing businesses to lean “back in the saddle as we approach the end of the year,” McNerney said. 

“I think the concern is significant because we don’t know how corporations or individuals will be taxed,” he said. 

Assurances from Congress that these spending and tax questions will be settled after the election aren’t enough for business leaders, especially after last year’s failure of the “super committee” to agree on a long-term plan to address the federal government’s huge debt load. 

“We have yet to regain faith that the process will deal with it,” said John Engler, president of the Business Roundtable. 

A temporary extension of current tax rates wouldn’t do much to encourage businesses to expand because that would just continue “the limbo we find ourselves in today,” McNerney said. 

“We would all advocate for an imperfect solution vs. waiting forever for a perfect solution,” McNerney said. 

U.S. corporations also can expect to see lower sales in Europe, as a result of the sovereign debt crisis and accompanying economic slowdown there. Meanwhile, China’s economy isn’t growing as fast as it had been. 

But Washington is the biggest thing holding business back, especially when you add uncertainty over regulatory policy to the mix. Many companies are holding back, waiting for clarity on these issues. If that ever happens, “there are lots of projects that will be unleashed,” McNerney said. 

Read this and other articles at the Business Journals


 
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