Posted: January 8, 2013
Even after Congress' action to avert part of the "fiscal cliff," business owners remain cautious about hiring and expanding. Those that are growing cite the underlying economy, but others say uncertainty about government spending is keeping them wary.
Businesses complained that the uncertainty surrounding the "fiscal cliff" froze their decisions about hiring and expanding, which hurt the economy. Washington has now managed half a deal, which settles tax issues, at least for the time being. But has that removed enough uncertainty to boost some business hiring and investment?
Vickers Engineering in New Troy, Mich., makes parts for auto companies, agriculture equipment manufacturers and the oil and gas industry. Scott Dawson, the company's chief financial officer, says the fiscal cliff deal on taxes helped his company move forward, by extending a provision that allows firms to rapidly deduct the value of new equipment from their tax bill.
"Now we can invest in more equipment, which allows us to take on more projects, which allows us to hire more people," he says. "That was one of the things that really we were waiting until they came to this agreement on how we were going to pursue our capital plans for 2013."
However, Vickers Engineering was already in an expansion mode, riding the revival of the auto industry. It has almost doubled its annual revenues to $30 million in the past two years. The fiscal cliff agreement will help the company complete a near doubling of its workforce by the end of this year.
But Dawson says another part the deal, the tax hike for people making over $450,000 a year, could be a drag. That's because Vickers' owners will pay more in taxes and have less money to invest in new equipment.
Dyke Messinger runs a small company called Power Curbers in Salisbury, N.C., which builds machines used to construct curbs and gutters for streets and highways. Messinger says he is ready to hire three or four workers.
But the reason Messinger is hiring is not the fiscal cliff deal but rather that the construction industry is getting back on its feet. "The economy has strengthened enough in the construction sector that we can foresee increased business, which will allow us to bump up hiring, bump up our spending on a variety of things that we were holding back on before," Messinger says.
Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University in Cleveland, says the situation at Power Curbers underscores that what is most important to small businesses is what is happening in their sector of the economy.
"You know, if demand is strong and the economy is growing and people are demanding products and services, then they feel confident on expanding and when that's not happening they don't feel confident," he says.
Shane says if you're not confident in the underlying economy, removing a little uncertainty about the government's fiscal situation may not be the answer to your problems.
Government contractors, especially in defense, may have the greatest uncertainty right now, says Stan Soloway of the Professional Services Council, an association of government contractors. "For the most part, I think what we're seeing are companies being very, very conservative and very, very disciplined in terms of their investments in people and in technology and so forth," he says.
What these companies want, Soloway says, is for policymakers to proceed with the second step in the fiscal cliff, cutting government spending — even if it means some pain for them.
"Rip the Band-Aid off and let's deal with this," he says. "If there's going to be substantially reduced spending, which we all expect, at least let's get it on the table, know what's coming so we can plan against it. That's when you'll start to see normalcy and investment decisions start to move forward."
But most analysts expect negotiations over spending cuts and the debt ceiling will once again go right down to the wire.
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