Optimism Among Pennsylvania Businesses Increasing

Summary: Recently the Lincoln Institute of Public Opinion released its annual Spring Keystone Business Climate Survey.  This latest survey showed a decided pickup in optimism among Pennsylvania businesses.  This upturn parallels a rise in business optimism nationally.


The survey asked 325 executives from all over the Commonwealth about their thoughts on the state of the economy, about current policy issues, as well as about the performance of state and federal level officials.  Over the past few years, iterations of this survey have shown optimism to be in short supply, but the 2017 version shows changes in business attitudes.  The survey is conducted twice each year.

There are six questions about the business climate that are consistently on each survey regarding business conditions, employment levels, and sales.  For the first time in quite a while, a more optimistic tone dominates the answers.

For example, when asked how they would rate business conditions in Pennsylvania today when compared to six months ago, 26.6 percent of the respondents answered that conditions are better.  The results from the spring and fall 2016 surveys were 5.7 and 4.97 percent respectively.  Furthermore, fifty percent claimed that conditions were the same as six months ago, up from 39.5 percent and 45 percent in the two previous surveys, while only 19.6 percent said they had deteriorated compared to 53.4 and 49.7 percent respectively in the spring and fall surveys.

When asked how they think business conditions will be six months down the road, 35.7 percent of the respondents indicated that they believe conditions will be better than they are today.  This is compared to just 7.9 percent of spring 2016 respondents and only 5.3 percent in the fall of 2016.  The percent of respondents indicating that conditions will likely be the same was 41.7 percent which is comparable to 40.8 percent in the spring of 2016 and 46.8 percent in the fall of 2016.  The difference can be seen in the percent of those responding that conditions will get worse.  In the current survey only 18.2 percent believe conditions will get worse compared to 46.7 and 43.5 percent who thought they would get worse in the two previous surveys.

It is worth nothing that the percent of respondents claiming that business conditions are/will be better in the above questions is the highest they have been in a long time.  Responses to the “are things better” question are the highest since 2005 while the number who think things will get better are at its highest point since coming out of the recession in 2011.

Optimism regarding employment levels in six months has also improved dramatically with 27.6 percent of respondents indicated those levels will be higher.  This is nearly twice as high as a year ago compared to the spring 2016 rate of only 14.6 percent.

This optimism may have its basis in the actual business activity that the executives experienced.  When asked how company sales today compare with those of six months ago, 26.6 percent indicate that they are better.  This compares to just 18.2 percent one year ago and 21.1 percent in fall 2016.  The percentage of executives claiming that sales have lagged the level six months ago is just 24.4 percent.  In the spring of 2016 that percentage was 39 percent and in the fall it was nearly 40 percent.  Again, sales would provide tangible evidence on which to base the optimism.

When asked if they believe how their sales levels would change relative to today, 47.1 percent indicated that sales would be better.  This is nearly double the percentage from the fall survey at 24.1 percent and significantly higher than last spring at 27.2 percent.  But more importantly only 8.7 percent indicated that sales would be worse six months from now.  This is in sharp contrast to the 23.3 percent in the fall survey who thought sales would decline.

Results from the Lincoln Institute’s Spring 2017 Keystone Business Climate Survey show levels of optimism not seen in quite some time—at least since before the last recession.  Causes for this optimism can be debated, but one factor could be the current president’s approval rating that was nearly 70 percent.  The two previous surveys had given the former president approval ratings of 8.8 and 11.1 percent respectively (his highest rating was 28 percent in fall 2012).  This suggests that optimism stems more from national influences than state ones.  In fact, the current Governor’s approval rating is just 16.4 percent, but is his highest level to date.  While this is much better than his two previous ratings of 5.4 and 6.9 percent, it does not approach a high enough level to imply business executives place credit for their optimism at the state level.

It remains to be seen if this upturn in optimism persists as federal and state level policy and regulation changes unfold.  But for now there seems to be a definite shift toward more optimism from business executives throughout the Commonwealth.

Pennsylvania Businesses Not Very Optimistic

Recently the Lincoln Institute of Public Opinion Research released its annual Spring Keystone Business Climate Survey. Over 360 business executives from all corners of the Commonwealth completed the survey.  The overall results are not too surprising—a significant percentage of the executives responding are not very optimistic about what the business climate has been or is expected to be over the next six months. But is this a one-time snapshot during a sluggish economy or a longer running trend?


To provide some insight into this question, we look at the previous Spring Business Climate Surveys back to 2010, the year the last recession ended.  Each year the survey asks executives to offer their opinions on issues that affect the business climate within the Commonwealth.  Some questions are specific to current events, but there are six core questions asking about general business conditions, sales, and employment levels.  In this Brief, we will concentrate on business conditions and employment levels.


When asked in the spring of 2010 “do you think business conditions in Pennsylvania are better, the same, or worse than they were six months ago”, only 12.6 percent indicated that it had in fact gotten better.  Forty-one percent claimed no change while 43 percent believed conditions had worsened.  Keeping in mind that the nation has just emerged from a severe recession, finding that 84 percent of business executives had the opinion that conditions had either not changed or deteriorated was not all that surprising.  Some optimism crept in during the spring of 2011 as 25 percent of respondents believed conditions were better.


However that mild optimism faded as the percentage of those indicating an improvement steadily declined over the next three years settling in at 14.3 percent in 2014.  This spring’s results showed a decidedly more pessimistic tone in response with the 85.2 percent of executives reporting no change or a worsening of Pennsylvania’s business climate from six months prior topping the percentage for this measure found by the 2010 survey. The latest survey results are certainly far from being a ringing endorsement of the economy.


When asked about the Commonwealth’s business climate six months out, 24.5 percent of respondents in 2010 thought it would improve.  Optimism about the near future was stronger in 2011 but gave way to a gloomier outlook in 2012 when only 15.5 percent thought the future was looking brighter. It rose a bit in 2013 to just more than 19 percent and remained there this spring.


The second set of questions concerns employment levels at the companies represented by the executives responding to the survey.  The first question asks “are employment levels at your company higher, the same, or lower than they were six months ago”.  As expected, while emerging from the recession in 2010, the responses reflect pessimism as only 9.5 percent of the respondents indicated they had increased employment levels.  This number rose to 22.3 percent in 2011 before falling sharply back to 13.4 percent in 2012 and then even further to 8.5 in 2013. It rebounded a bit this past spring as 14.6 percent of executives stated they have increased employment over the last six months.


But the real story here is the percentage of executives who claim their firms stood pat over the previous six months.  In 2010 that percentage was 54.7.  It increased some over the next two years reaching 65.7 in 2012.  After a slight dip last year, it stood at the two–thirds level in the most recent survey.  The only positive is that when asked if any had decreased employment, the 18.2 percent who acknowledged that they had, is the lowest figure in the last five spring surveys (the highest was 2010 at 31.6 percent).


The second question surrounding employment is concerned with expected levels six months out.  Coming out of the recession in 2010 the percentage indicating that they were planning to add to payroll was only 8.6 percent.  The number increased greatly in 2011 (29.8 percent) before falling to roughly half that in 2012 and 2013 respectively.  In the most recent survey that number has crept up to 18.2.  In 2014 nearly 70 percent responded they had no plans to change employment levels, the highest level since 2010 when 74.2 said they were planning to hold steady.


This lack of ebullience among executives about the business climate and their employment levels is substantiated by the official jobs figures. Establishment payroll data for Pennsylvania shows that from 2010 to 2011 the annual average number of total nonfarm jobs increased by just over 63,000—about one percent.  From 2012 to 2013 this figure increased ever so slightly by just 16,600 jobs.  Thus far in 2014 the number of nonfarm jobs in the Commonwealth has risen by 37,900 in January over its year earlier level, but that growth cooled off considerably in February and March.  While these are positive gains, it shows basically no evidence of accelerating in statewide job totals thus far in 2014.


The results of the Lincoln Institute’s 2014 Spring Business Climate Survey are not very optimistic.  It continues a trend that stretches back to the end of the recession in 2010.  Those in the know—business decision makers—reinforce what the data has been suggesting, that the Pennsylvania economy, has been moving ahead, albeit slowly over the last couple of years.

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.

Does Brewer Know What “Ales” the State?

A news article today spoke of the astronomical growth experienced by one Pennsylvania brewery and its plans in the not too distant future to build another brewery to keep up with demand.

Could the location be the Keystone state or somewhere else? Probably hard to say, but the brewery’s owner noted in the article that "Pennsylvania is a great location. But it’s not very business-friendly. You look for fair tax breaks, fair taxation. And the bottom line is more jobs. That’s what it’s all about."

So what is the company advocating for? Does it want Pennsylvania to reform its tax system so that businesses can grow and businesses from other places would be attracted to locate here without special tax treatment i.e. low business taxes for all and a sensible regulatory climate?

Or does it want the state to amp up its plethora of incentives, credits, tax free zones, and other targeted programs so that it will be incentivized to stay put? With every state playing the tax incentive game there are plenty of opportunities for the brewery to point out that it could locate somewhere else. Policymakers panic, carve out a package, offer it to the company, and hope for the best. The benefits are touted while the direct and indirect costs of picking winners and losers in the economic development game are downplayed. Then the business who thought the tax and business climate was unfriendly no longer thinks that way.

Pennsylvania Slides in Another Business Climate Ranking

The Commonwealth slid in yet another ranking of the state’s business climate.  In their report “America’s Top States for Business 2012” CNBC uses ten categories to rank the fifty states.  Pennsylvania finished thirtieth in 2012 after finishing twelfth in last year’s ranking.  Why the fall?  What does the ranking say about the Commonwealth’s business environment?

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Job Creation Silliness

It must be the time of year for some to engage in the kind of intellectual vacuity that represents total abandonment of reason. The Keystone Research Center just released a study purportedly showing Pennsylvania’s employment situation to be worse than the 7.4 percent current unemployment rate depicts. Fair enough. Everyone who follows the labor market knows there are lots of folks who are underemployed or have dropped out of the work force because they have become discouraged. That is not news.

But come on. Pennsylvania’s unemployment rate is well below the national average-for several reasons. First, because the state has been such a slow performer for many years prior to the recession and did not have a housing boom as did many states, the housing induced downturn was not as dramatic in Pennsylvania. Second, the industry mix of jobs in Pennsylvania has changed substantially over the decades away from goods producing jobs that are subject to recessions toward industries that are more recession resistant. Third, the state is in the midst of a booming growth in the natural gas business thanks to Marcellus Shale that is greatly improving the labor situation.

There is no mention in the report of the reasons Pennsylvania has been a perennial slow growth state. That list would include punitive anti-business labor laws, lawsuit abuse, environmental regulations, business taxes, prevailing wage requirements and a generally unfriendly business climate.

But the report does have recommendations on how to grow jobs. More government spending, especially on infrastructure, extending jobless benefits and job training.

How predictable. Government spending of money the state does not have to create prevailing wage jobs to support union workers. Job training to do what? To learn how to work on roads that are in endless need of repair?

Not a word about addressing the obstacles to growth in the state. There is no talk of Right to Work, ending teacher strikes, eliminating prevailing wage and getting environmental regulations under control. In short, this is nothing more than the failed policies that have crippled Pennsylvania’s economy for decades. It is stunning to see how resistant to facts and reason some people can be.

Pennsylvania’s Anti-Growth Trifecta

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The decades’ long anemic growth of Pennsylvania’s economy has been well documented. Consistently over many years, the state has posted job gains ranking among the bottom five or ten states. That should come as no surprise given the business climate and regulatory environment special interests have saddled the Commonwealth with. Let’s look at three of the worst of the legislative and policy measures inhibiting Pennsylvania’s growth.   



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