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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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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