Ronald Lazof is managing director of Prism Advisers, LLC and a Job Creators Alliance member.
The month of June has not been kind to the U.S. economy. A series of discouraging reports, including this week’s troubling manufacturing numbers, could be a harbinger for a disappointing jobs report this Friday, indicating that a full economic recovery is far from over.
On Monday, the Institute for Supply Management, a trade group of purchasing managers, reported that its index of manufacturing activity fell to 49.7, the lowest reading since July 2009, and down from 53.5 last month. Perhaps of more concern, the index for new orders, an important barometer of future production, dropped to 47.8 percent from 60.1 percent the month before, the sharpest such decline in a decade.
In other words, the manufacturing sector, a lonely bright spot in the American economy that has driven much of the recovery, is contracting for the first time in two years, against a background of falling production and export indicators and unchanging employment numbers. Stock prices fell immediately after the manufacturing report was released Monday morning.
Adding to the gloomy outlook, the International Monetary Fund lowered its projection for U.S. economic growth over this year and the next in its annual evaluation of the U.S. economy.
The faltering recovery and concern over economic policies have contributed to an increasing climate of uncertainty–uncertainty that hits small businesses worst. In fact, a recent survey released this week showed lower hiring expectations among small businesses. Only 30 percent of the executives of small- and medium-sized businesses surveyed expect the economy to improve, and just half plan on hiring this year, citing uncertainty, healthcare, and economic policies and possible tax increases.
It is no wonder, then, that both business expectations and economist projections for June’s jobs report are dour.
However, the economic recovery may not yet be lost. There are glimmers of hope amid pessimistic news, like stronger home sales, increased domestic oil production, and new construction spending.
In reality, one month’s jobs report is neither a definite sign of recovery nor of recession; a number of factors can inflate or deflate the numbers. What is more telling is how this month’s report will fit into a broader trend, and whether it will ease or exacerbate the high level of anxiety throughout the economy, and especially among small businesses. People–business owners, investors, consumers–are nervous, indicating that a truly stable recovery is still far away.
If policymakers really want to jumpstart and sustain the growth of the American economy, they must buckle down and tackle serious issues contributing to economic uncertainty. More specifically, legislators must address small business worries of the so-called “fiscal cliff” in 2013 that would impose more regulations and burdens on already struggling firms. Elected leaders must come together to pursue tax and fiscal reforms that will avoid that cliff. To grow–and create jobs–small businesses must have confidence that their investments and expansions will yield profitable returns.
For a truly robust economic recovery, we need to put politics aside and pursue progrowth policies that will streamline regulations and decrease tax burdens, creating a better business climate. Better business means more jobs.
In short, small business stakeholders need to regain a feeling of confidence which can only be driven by a belief in a stable playing field, where the “rules of the game” are known and the risks leading to positive outcomes are associated with the skills and determination they bring to the challenge.