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Friday, December 14, 2012

Business leaders warn as cliff nears

originally appeared in USA Today:

Business leaders are getting more worried about the fiscal cliff, and urging Congress and President Obama to make a deal before the New Year triggers a series of tax increases and spending cuts that would likely put the nation back in a recession.

The Business Roundtable released a letter signed by 158 chief executives of companies with more than $7.3 trillion in sales and 16 million workers, saying congressional Republicans need to make concessions on revenue, and Democrats need to give ground on entitlements such as Medicare and Social Security.

At the same time, the National Federation of Independent Business said a survey of its members showed a huge drop in confidence after the November election, as the cliff drew closer.

The NFIB survey of business confidence fell almost six points to 87.5, the lowest score since 2009 and far below stock market expectations for 92.5. The drop is a sign that business owners are losing confidence as Congress moves closer to raising taxes on couples making more than $250,000 a year, even though less than 5% of business owners make that much, said UBS economist Drew Matus. Only 9% expect better conditions in six months, compared with 49% who expect things to get worse, the NFIB said.

The United States will suffer significant negative economic, employment, and social consequences for going over the fiscal cliff, the CEOs said in a letter to congressional leaders. In many cases, the damage will be long-lasting, if not permanent. But it does not have to happen.

The chief executive of USA TODAY parent Gannett, was one of the CEOs who signed the letter.

The NFIB survey showed declines in nine out of 10 indicators of confidence, with a slight uptick in hiring plans for early next year, the federation said.

Marginal investments may not be undertaken as the increase in taxes moves some investment from the yes to the no column. The debate is whether that marginal investment is a significant source of innovation or employment.

The survey was more bearish than other indicators of business confidence recently. Moody's Analytics' weekly survey of business confidence, released Monday, said confidence rose slightly but remains at a low level. About a third of respondents expect the economy to get worse in the next few months, Moody's reported. In Moody's survey, government officials were the most pessimistic about the economy.

Like investors, businesses appear to believe that policymakers will come to terms before pushing the economy back into recession, Moody's chief economist wrote in a report. However, business sentiment appears very fragile and likely to turn sour quickly if policymakers do fall short.

Small business owners created 19,000 new jobs in November, payroll processing company ADP reported on Dec. 5.