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Why businesses aren't hiring in two graphs

Chris Gaun notes that we don't have to theorize about what's scaring businesses. We can ask them instead. The National Federation of Independent Businesses -- a small-business trade association that is considered the most right wing of the major business groups -- continually polls its members and releases the results. Here's what they say is their single most important problem:

the-problem-tax-fears-and-bad-sales.png

As you can see, sales -- that is to say, demand for their products -- dominate the chart, while fear of taxes is lower than in the '90s. The concern over sales is understandable. Not only is the economy bad. But as the next chart shows, it keeps underperforming what the businesses assume will happen.

sales-dipping-and-already-below-expectations.png

So, if anything, businesses have been too optimistic over the past few years.

Graph credit: NFIB/Business Insider.

By Ezra Klein  |  July 22, 2010; 2:18 PM ET
Categories:  Charts and Graphs  
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Comments

Labor quality as a cause is also quite low.

Posted by: bdballard | July 22, 2010 2:21 PM | Report abuse

this is all nice and good but the question really is which drives which? What came first the chicken or the egg?

or in this case, "Which came first (or more importantly which drives which) high levels of unemployment or low demand for goods and services?"


Yes sales are low because people don't have jobs and while I agree employers won't hire because there's low demand for their goods and services its one of government's jobs to foster economic growth through the private sector. They are severely lacking in that area.

And NFIB isn't that right wing. They're a local grass roots group that caters to small businesses.

Posted by: visionbrkr | July 22, 2010 2:24 PM | Report abuse

@bdballard,yes, probably because the labor pool is so large. It's a buyer's market.

Posted by: jmundstuk | July 22, 2010 2:24 PM | Report abuse

Ezra, to pick a nit, don't think it's "fear" of taxes but taxes themselves that are a problem in this chart.

Posted by: jmundstuk | July 22, 2010 2:25 PM | Report abuse

I'm surprised that "interest and finance" doesn't show any movement at all over the course of the 2007-2009 crisis. I would have expected at least some uptick at least in late 2008, and some subsequent decline. But you would never guess that a financial crisis had occurred from looking at this graph. In so far as that sees inconsistent with the Fed's surveys of businesses (which shows clear evidence of a credit crunch at least for a while), I wonder exactly what questions are put to respondents and if they are framed in such a way that the "interest rates & finance" response would be understood to include lack of access to credit.

Posted by: rwclayton7 | July 22, 2010 2:31 PM | Report abuse

ON JLIST (sorry) Fox has another Meg Kelly segment on now w/ Daily Caller dude. What a farce. Lots of "coordination" by listers, the sort the members could have done over beers at a sportsbar! SteveD

Posted by: smd1234 | July 22, 2010 2:51 PM | Report abuse

@bdballard as @jmundstuk suggests, a large pool = high quality. If you look at the complaints about labor quality, they run up during booms and down during busts, lagging by what appears to be a matter of months. The smaller the pool, the less selective employers get to be.

Posted by: OpieCurious | July 22, 2010 3:09 PM | Report abuse

TO be fair looking at the second chart they seem to be overly optimistic (by about 15-20%) all the time.

Posted by: BottyGuy | July 22, 2010 3:12 PM | Report abuse

Are the people here all in the oblivious top 3-5%? How obvious does it have to be that if businesses are laying off people, cutting hours and benefits and turning to temps that consumers are bound to have less money than before, and they look around and see all this job uncertainty and they have huge debts and so they retrench their spending. How hard is that? I've read that consumer deleveraging will take 5 years.

Is it time yet to talk abut reversing the redistributive policies that killed consumers' buying power?

Posted by: Mimikatz | July 22, 2010 3:15 PM | Report abuse

@jmundstuk and @OpieCurious, that labor quality was a very low concern struck me because it contrasts so strongly with the frequently heard (often heard? sometimes heard?) assertion that the current recession has something to do with a mismatch of skills and opportunities in a time of technical transition.

Posted by: bdballard | July 22, 2010 4:09 PM | Report abuse

"Is it time yet to talk abut reversing the redistributive policies that killed consumers' buying power?"

No, but it's time to talk about tax cuts!

Posted by: davis_x_machina | July 22, 2010 6:11 PM | Report abuse

With all due respect, I do not think I have ever read anything as funny as the "NFIB is not that right wing".

In what world do you spend most of your time?

Posted by: edmichael | July 22, 2010 9:40 PM | Report abuse

"Labor quality as a cause is also quite low."

i guess if i worked at a place that offered few if any benefits (healthcare, overtime, few opportunities to advance, etc), and didn't feel that my input into the company wasn't respected -- why should i put out my best?

remember when it used to be? if you got a low-level job in a company, proved your work ethic, you had the chance of moving up?

Posted by: jeeze56 | July 22, 2010 10:15 PM | Report abuse

Ezra,

Here's something very interesting in light of your first graph.

I had an exchange with Washington St. Louis economist and blogger Stephen Williamson on unemployment in the comment section of his blog (at: http://newmonetarism.blogspot.com/2010/06/replies-ot-comments-on-kocherlakota.html#comments):

Me: Ok but here's the information that I really think is needed:

You wrote that the high unemployment:

"is due to sectoral reallocation in the United States, away from manufacturing and housing, and toward services, and within the manufacturing sector. As such, there is little the government can do about it, except to wait for the reallocation to work itself out, and ease the transition with relatively generous unemployment insurance benefits."

What models, papers, and/or other writings do you base this Austrian view on? And that it can take years or even decades for businesspeople to make the decision on how to reallocate their resources in a way that's better than just leaving large amounts of human capital producing nothing. [I had in mind Krugman's criticism, "And the key to all this, I believe, is that the Austrian abhorrence of explicit models, even for the purposes of clarifying thought, leaves them unaware of the holes in their account.", at: http://krugman.blogs.nytimes.com/2010/04/07/martin-and-the-austrians/]

Williamson: See this story from today's New York Times. It's just anectodal, but consistent with my story:

http://www.nytimes.com/2010/07/02/business/economy/02manufacturing.html?_r=1&src=me&ref=homepage

End Quote

So this fits what Krugman said. I asked for models to support the Austrian story Williamson was giving for not being concerned about the unemployment rate, and if Williamson had models behind his Austrian explanation they should have been on the tip of his tongue, easy to quickly type off – the Smith model, CAPQ, whatever. Instead I got an anecdotal article from the times showing some manufacturing employers having trouble finding workers with the necessary educational skills. But now I see even there wider systematic empirical evidence from your chart pointing against that as a major explanation. Only a few percent of businesses list "labor quality" as their single most important problem, and that percent has plummeted since the start of the recession and is the lowest it's been since the chart begins in 1986, even though unemployment is still very high by historical standards. Meanwhile, the problem "sales" is approximately ten times larger, has skyrocketed since the start of the recession, and during the recession is by far the highest since the chart begins in 1986.

Posted by: RichardHSerlin | July 23, 2010 2:02 AM | Report abuse

@RichardHSerlin, thanks for elaborating well the rationale behind my first comment in this thread.

Posted by: bdballard | July 23, 2010 11:02 AM | Report abuse

I would bet that if you were able to get into the data you'd find that "fear of taxes" relates to marginal cost, meaning that if sales are ok then the amount that taxes eat away directly affects your margin, even into the red. In other words, taxes are a cost. But the graphs show, as you note, that demand has collapsed. Not much need to worry more about cost when you're not selling enough.

Posted by: jomiku | July 23, 2010 2:52 PM | Report abuse

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