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U.S. Economy 2012: Jack Welch on What's Stifling Job Creation

Excessive government regulation and uncertainty over tax policies are what's restraining companies from hiring, former General Electric (NYSE: GE) CEO Jack Welch said on CNBC last Wednesday.

Welch joins a large number of economists and pollsters trying to sort out why the U.S. economy in 2012 hasn't rebounded more strongly from the 2008-2009 recession.

In particular, everyone is trying to figure out why job creation has been so sluggish.

The U.S. economy added just 69,000 jobs in May. That's far below the 150,000 or so needed just to keep pace with new workers joining the labor force.

"We should be poised to do well, but we are getting hammered by political forces who won't deal with the fiscal cliff coming up," said Welch, referring to the expiration of the President Bush-era tax cuts and sharp reductions in federal spending due to hit in January.

Welch blamed an array of government agencies for cooking up more and more nitpicking rules. Such rules have little or no benefit, but hamper business owners and suppress job creation.

"These are the things that are going on every day. They add up," Welch said. "That's why we're not taking off."

Welch compared the current recovery to the Reagan Administration recovery in the mid-1980s. That recovery, once it got going, accelerated rapidly.

"If you look at 2009, and you look at the recovery we launched, we were getting into a traditional recovery," Welch said. "We had 4%, 4.5% growth until we started getting into regulations."

Jack Welch Not Alone in U.S. Economy View

The blunt talk from Jack Welch echoes data from several recent surveys of businesses.

The surveyed business owners added several more concerns to Welch's list. And most of those concerns share a key characteristic: they feed uncertainty.

"If you're anxious, you sit on your hands," Chad Moutray, chief economist at the National Association of Manufacturers, told the Associated Press.

Like Welch, many businesses see increasing government regulation as a hindrance. They're worried about the fiscal cliff and what Congress will – or won't – do about it.

But that's just the half of it.

The surveys reveal a lot of concern about the U.S. economy and whether sales will rise enough to justify hiring. And lingering anxiety from 2008-2009 has left many businesses wary of taking on the risk of hiring new employees.

What's more, many businesses got lean and efficient during the Great Recession. The improved productivity means they simply don't need as many employees as before.

Survey after survey tells the same story. For instance, the Federal Reserve Bank of Philadelphia asked manufacturing firms to rank the most important factors restraining hiring in its Business Outlook Survey for May.

Worries relating to the weakening U.S. economy – "expected growth of sales is low" – topped the list with 51.3% listing it among their choices.

The second-most common factor named was a desire "to keep operating costs low," a hint companies are starting to hunker down in case things get worse.

Worries about government interference also figured prominently. Nearly a third, 29.3%, cited "uncertainty about the cost of health insurance" – in other words, Obamacare. More than a quarter, 25.6%, listed "uncertainty about regulations or policies."

Other factors included the inability to "find workers with the required skills," (28%) and "current staff is underutilized" (15.9%).

Job Creators: We Don't Need More Workers

A Gallup/Wells Fargo poll of small businesses in January had much the same results.

Of those not hiring – 85% of the sample – 76% said they didn't need any more workers, and 71% said sales did not justify adding workers. Two-thirds cited worry about the U.S. economy.

Nearly half (46%) said concerns over new government regulations were restraining job creation; even more cited concerns over the potential cost of healthcare (48%).

"The debate over why U.S. small-business owners aren't hiring more aggressively tends to hinge on whether overall business conditions, including a lack of growth and revenue, are the primary culprit as opposed to the potential cost of healthcare and government regulations," wrote Gallup Chief Economist Dennis Jacobe. "Apparently, both sides of the debate are correct."

Another poll, conducted in April by Sageworks Inc. asked financial services professionals (such as accountants) why their clients aren't hiring.

They cited many of the same factors found in the other surveys, again with uncertainty the most common theme.

But Sageworks CEO Brian Hamilton added yet one more ominous twist. He noted that most expansions last just four years. And the current recovery, though weak, is now entering its fourth year.

"The fear now is that we may be running out of runway before the onset of another recession," Hamilton said. "If we don't get employment up, we may be bumping into the next recession, during which time we cannot expect job growth."

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  1. Vincent Lawrence | June 26, 2012

    For the past 3 1/2 years Obama has threatened for higher taxes, How high, as high as Europe, with or without VAT, Value Added Tax. At the same time Obama Care was shoved to the front of the dictates
    of the Obama Administration, and to this date we still do not know how much it will cost.
    These are but two programs that have no price tag and no indication from the administration the cost.
    Business is very structured, with business plans and budgets, every level of business uses these tools
    to plan and execute ever facet of business. Business leadership can not begin to write a business plan for start ups or growth in any business with such a major unknowns to contend.
    In addition With Obama in the Oval Office every business must consider the "what if" Obama declares war on you business and Nationalizes a company in your industry a competitor or your company.
    Who in their right mind will invest with those risks, as long as Obama is in the Oval Office.
    He just killed the Coal Industry and Coal fired Power Plants, And the Oil Refineries are closing
    with the help of PCA and Obama. those jobs are headed to Mexico and South America, what will that do to the price of fuel and supply of fuel commuting and Trucking.
    All issues point to OBAMA.

  2. Pat Bourne | June 27, 2012

    The above diatribe from Vincent Lawrence is pure partisan, fear mongering, Obama hating nonsense. Current taxation rates are the lowest in decades, they cannot meet the expenses for basic government services, for every 2 dollars in taxes collected the US must borrow another dollar to make up the shortfall. Of course taxes must rise, the alternative is drastic cuts to Defense, Social Security, Medicare, Medicaid. If the Obama administration is anti-business then their policies are not working ! – corporate profits have never been higher (and I don't mean just since the 2008 recession, I mean in recorded history). Businesses are not expanding to create new jobs because of weak demand – it is not related to regulations, uncertainty or health care. The US economy is 70% consumer driven, consumers are not in a spending mood – they are in a 'paying down debt' mood as evidenced by the 20% decline in credit card debt over the past 3 years (just think if the US government could match this rate the entire national debt could be retired in 15 years !). Furthermore this will be exacerbated as the baby boom generation retires to live on fixed incomes – their big spending days behind them. We have to re-invent the American economy, there is no quick and easy fix.

  3. Norris Lineweaver | July 1, 2012

    @ Pat Bourne (June 27, 2012). Thank you. Based on credible sources I read and study carefully, I find your post most refreshing and sobering. You reflect my sentiments entirely. It seems for too many that identity and self imposed autonomy of partisan ideology trumps rational thinking and resistance to make tough decisions to reinvent our nation's economy. Uncertainty is the beast standing in the way of progress and new prosperity. It seems to me that our elected leadership in Washington D.C. is stuck in quicksand by their own doing. Partisan bickering stalling compromise and real solutions further exacerbates uncertainty. It is so painful to witness otherwise capable and able leadership stirring in quicksand with no evidence of reaching for the obvious lifelines. Lifelines? (1) Focus on priority issues fundamental to economic takeoff and security; (2) shed redundancy and trim costs that are secondary to mission critical; (3) rebalance fair share contribution for everyone; and (4) set a course to reduce national debt over a reasonable and prudent time period.

  4. Jim | July 2, 2012

    If you have cancelled the credit worthiness of large swathes of US citizens as a consequence of easy money loans, easy access to credit cards(some people having 10 to 15 cards per person), no wonder before 2008 crash the US was growing 3-4% per Qtr. Now those no longer credit worthy people, perhaps as much as a whole generation of Americans (most likely parents in the most critical child rearing period of their lives are wiped out), you have to wait until the next generation grows up to have credit worthy borrowers again, what will that do to the US economy.??

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