Enthusiasm Sags among Commonwealth’s Business Executives

The results from the Lincoln Institute’s Spring 2013 Keystone Business Climate Survey reveal a lack of optimism among Pennsylvania’s business executives. They were queried about the business climate, as well as the sales and employment levels at their company over the last six months and their outlook for the next six. Their responses were surprisingly similar to last year’s results (see Policy Brief, Volume 12, Number 25) which were also lacking in enthusiasm for the current state of the economy and the prospects for the near future.

The survey asked these executives (251 of 260 completed it) to rate business conditions, on a general basis, in Pennsylvania compared to six months ago. Nearly 47 percent rated conditions the same while more than 35 percent believed they had gotten worse. In last year’s survey a greater percentage rated the economy as unchanged (51 percent) but a lower percentage regarded the climate as declining (30 percent). Only 17 percent indicated that business conditions had improved-the same percentage as last year.

A similar situation arose when these respondents were asked about their outlook for the near future. Nearly 47 percent believe improvement in the business climate is not imminent, down from 57 percent from 2012. Meanwhile, more than 32 percent are predicting a worsening of the business climate over the last half of the year, a higher figure than in the spring of 2012 (26 percent). However, 19 percent did express confidence that the next six months will bring improvement-up from 16 percent a year ago.

This general lack of optimism is not based simply on opinion, but rooted in actual experience as the executives were asked about their company’s sales levels over the past six months. Forty-six percent of the respondents reported a decrease in sales-up from nearly 35 percent in the 2012 survey. Those indicating that sales remained the same were nearly identical in the two surveys (over 36 percent) but the percent who reported an increase in sales fell in the 2013 survey-17 percent compared to 28 percent in 2012.

And because of these results, the executives surveyed were less enthusiastic about their sales projections over the next six months. More than 51 percent expect sales levels to be stagnant-up from 46 percent in 2012-while nearly 28 percent expect an increase in their sales-down from 32 percent in 2012. Although a smaller percentage in the 2013 survey (19) believed their sales levels will decrease than did so in the 2012 survey (20 percent).

Of course sales will have an effect on employment levels. Over the period of the last six months, 62 percent of the executives responding to the survey indicated they stood pat on hiring employees while 27 percent had reductions to their payrolls. In the 2012 survey 66 percent indicated that they held payrolls constant with nearly 20 percent claiming they reduced employee levels. Obviously there is frustration with the business climate in Pennsylvania, but also on a national level as the economy is still struggling to add jobs-a fact that is corroborated in this survey. Only 8.5 percent of the respondents claimed to have added to their payrolls over the last six months compared to 13 percent of executives a year ago.

So whom do they hold responsible for the sluggish business climate? While there are many choices to point a finger toward, the respondents placed most blame on national policies. The United States Senate had the greatest negative approval rating (95 percent), scoring worse than a year ago (92 percent). The President’s negative rating in the latest survey actually improved over last year (84 percent vs. 89 percent). The U.S. House of Representatives’ disapproval rating was essentially unchanged at 71 percent over the two polls.

At the state level the State Senate had the highest disapproval rating (54 percent) followed by the State House (48 percent) and the Governor (32 percent). This mirrored last year’s order, with the disapproval ratings received by the State Senate and House somewhat improved in the 2013 survey while the Governor’s rating was unchanged.

Of course pointing fingers at elected office is one thing, but there are issues these business executives would like to see addressed by public officials to improve the business climate and ultimately improve the economy. This year’s survey posed questions about state level issues such as pensions, the budget and transportation funding.

Regarding the shortfall in funding for public employee retirement systems, the two responses garnering the most attention as a solution are requiring higher employee contributions and cutting benefits to retirees. Only a small portion of responses recommended raising taxes to cover the pension shortfall (4 percent).

At the same time, a small majority (56 percent) recommended that state spending be cut even further but only a scant few (4 percent) suggested increasing taxes and spending. And when asked for the preferred solution for transportation funding “cutting administrative overhead” received the most responses followed by “cut spending in other areas and divert to transportation”. Only a few respondents advocated raising the gasoline tax. However, when asked if the increase to the gas tax would result in an increase of over 20 cents per gallon, 69 percent of the respondents were either strongly or somewhat opposed to the idea.

The Lincoln Institute’s survey of business leaders has uncovered a mood that is far from optimistic about the state of Pennsylvania’s economy. This mood closely mirrors last year’s survey results about current business conditions, although in this year’s version, many more are negative about the prospects for any improvement in the near future. Respondents continue to place blame on elected officials and by extension their policy choices for the sluggish economic environment.