Private-sector optimism is widespread, with risks from tariffs, deficits and global tensions outweighed by profit-plumping tax cuts and deregulation.
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By PATRICIA COHEN, The New York Times
Potential perils are in plain sight: An intense and unpredictable tariff battle is alarming businesses across the country. The annual federal deficit is heading toward $1 trillion. Credit card debt is soaring. And the synchronous wave that lifted every world economy at the year’s start has dissipated.
So what?
Such risks have done little to puncture the exuberant optimism that is encouraging American businesses to ramp up hiring and consider new investment.
The confidence is rooted only partly in hard-nosed data, like the rapid pace of growth expected for the second quarter and record low jobless rates. It is also a sign of harder-to-measure sentiment. “Animal spirits are high,” said Tim Ryan, United States chairman of the global accounting and consulting firm PwC, referring to the gut feelings and impulses that can drive economies to elation or despair.
Business leaders who complained that they sometimes felt vilified as engineers of inequality — or greedy exploiters — now say they are pleased to be viewed as part of the solution, creating jobs and wealth. “They feel good about themselves, like they are the good guys,” Mr. Ryan said, describing comments from hundreds of chief executives to his firm over the past quarter. “They are sitting up a little straighter in the chair.”
[post_ads]The optimism index of the National Federation of Independent Business is in the 99th percentile, an “astounding” number, according to the group’s president, Juanita Duggan. At the start of this week, nearly nine out of 10 companies in the Standard & Poor’s 500-stock index reporting earnings so far had beat expectations.
“I’m bullish,” Mike Ferretti, chief executive of Great Harvest Bread Company in Dillon, Mont., declared. At the beginning of 2016, sales were so slow that the company sharply discounted the initial franchise fee for its bakery cafes, from $35,000 to $20,000. This month, Mr. Ferretti restored the $35,000 price. “We’re confident that the economy is strong enough to not need the discount.”
Such exhilaration is not evenly spread throughout every sector or region. Soybean and pork farmers, automakers and some manufacturers are profoundly worried about rising raw material costs, sinking sales in export markets abroad, broken supply chains and shipment delays. A survey of metal stampers and fabricators, found that the share of companies looking forward to improved business conditions swooned to 31 percent in June from 97 percent in February. And uncertainty about the future is at heartburn levels.
Still, many business leaders are shrugging off otherwise troubling developments like a nasty trade war, labor shortages fueled by restrictive immigration policies, and cracks in the postwar order and America’s touchstone alliances with remarkable ease.
Mr. Ferretti says he understands that an all-out trade war will hurt the economy, and that immigration restrictions are making it tougher to find workers.
But at the moment, what seem to be more distant risks are being far outrun by immediate enthusiasms. Steep tax cuts for corporations and other enterprises have heaped plump windfalls on many investors and chief executives. After-tax corporate profits account for 9.6 percent of the nation’s total domestic output, roughly 50 percent above the historical average. Environmental, financial and safety regulations decried as cumbersome by businesses are being rolled back. And the stream of foreign investment in the United States is continuing.
“My entire career, we’ve all been screaming over the deficit,” said Mr. Ferretti, recalling lectures he heard in business school. “I’m pushing 40 years into my career, and the deficit fears just never happened. At some point it feels like worrying about the sky falling.”
While the anxieties are speculative, “the tax reform package truly does put more money in our pockets now,” Mr. Ferretti said, “so we have more money to grow the business.”
Mark Liston, president of Glass Doctor, a company in Waco, Tex., that replaces and repairs commercial, automotive and residential glass, says he hasn’t seen this much optimism in his 37 years in business. “Those of us who are outside the Beltway, we ask, ‘How is my checkbook, how are my investments, how’s my job security?’” Mr. Liston said. “And if all those are positive, I feel O.K. spending money.”
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With Democrats and Republicans fiercely battling for control in Congress, it is unclear how much business and consumer sentiment — which has also been very high in surveys — will ultimately affect voters’ choices in the November elections.
Midterm elections have tended to result in a loss of seats for the party in the White House, with the president’s popularity working to amplify or blunt the impact. The economy generally plays a supporting role.
Among Republicans, Mr. Trump’s overall approval rating is near 90 percent, although across the public as a whole, it has lingered around the 40 percent mark. The question is whether a roaring economy can soothe voters unsettled by the president’s policies or temperament, and offset any inclination to check his power.
Mr. Trump has argued that the United States has long been taken advantage of by its trading partners and that punishing tariffs will force them to adjust their practices. Those comforted by the buoyant economy may be more likely to give Mr. Trump’s negotiating style the benefit of the doubt.
[post_ads]Although the second quarter’s heady growth pace — estimated at more than 4 percent — is expected to slow markedly in the second half of the year, a drop-off that showed up after the election would have less impact.
At the same time, for many smaller businesses, sensitive political topics can often seem removed from day-to-day business life. “They’re not worried about China tariffs and trade fights with Germany,” said Mark Hemmeter, the founder of Office Evolution in Broomfield, Colo., which franchises office space for small businesses to rent. “Our clients are focused on developing business in their communities.”
What does attract notice is the perception of a pro-business mind-set in Washington.
“I think, psychologically, it’s fantastic when you have a business cheerleader in the White House; small businesses feel more comfortable with the direction,” said Mr. Hemmeter, who said he expected to double the number of franchises to 60 by the end of the year, and then double again by the end of 2019.
Whatever the political winds, Bonnie Micheli and Tracy Roemer, founders of the boutique fitness studios Shred 415 in Chicago, are enjoying the open wallets. “We feel the economy is really strong right now, especially in health and wellness,” Ms. Micheli said. “Politics are just irrelevant to our business.”
The confidence is rooted only partly in hard-nosed data, like the rapid pace of growth expected for the second quarter and record low jobless rates. It is also a sign of harder-to-measure sentiment. “Animal spirits are high,” said Tim Ryan, United States chairman of the global accounting and consulting firm PwC, referring to the gut feelings and impulses that can drive economies to elation or despair.
Business leaders who complained that they sometimes felt vilified as engineers of inequality — or greedy exploiters — now say they are pleased to be viewed as part of the solution, creating jobs and wealth. “They feel good about themselves, like they are the good guys,” Mr. Ryan said, describing comments from hundreds of chief executives to his firm over the past quarter. “They are sitting up a little straighter in the chair.”
[post_ads]The optimism index of the National Federation of Independent Business is in the 99th percentile, an “astounding” number, according to the group’s president, Juanita Duggan. At the start of this week, nearly nine out of 10 companies in the Standard & Poor’s 500-stock index reporting earnings so far had beat expectations.
“I’m bullish,” Mike Ferretti, chief executive of Great Harvest Bread Company in Dillon, Mont., declared. At the beginning of 2016, sales were so slow that the company sharply discounted the initial franchise fee for its bakery cafes, from $35,000 to $20,000. This month, Mr. Ferretti restored the $35,000 price. “We’re confident that the economy is strong enough to not need the discount.”
Such exhilaration is not evenly spread throughout every sector or region. Soybean and pork farmers, automakers and some manufacturers are profoundly worried about rising raw material costs, sinking sales in export markets abroad, broken supply chains and shipment delays. A survey of metal stampers and fabricators, found that the share of companies looking forward to improved business conditions swooned to 31 percent in June from 97 percent in February. And uncertainty about the future is at heartburn levels.
Still, many business leaders are shrugging off otherwise troubling developments like a nasty trade war, labor shortages fueled by restrictive immigration policies, and cracks in the postwar order and America’s touchstone alliances with remarkable ease.
Mr. Ferretti says he understands that an all-out trade war will hurt the economy, and that immigration restrictions are making it tougher to find workers.
But at the moment, what seem to be more distant risks are being far outrun by immediate enthusiasms. Steep tax cuts for corporations and other enterprises have heaped plump windfalls on many investors and chief executives. After-tax corporate profits account for 9.6 percent of the nation’s total domestic output, roughly 50 percent above the historical average. Environmental, financial and safety regulations decried as cumbersome by businesses are being rolled back. And the stream of foreign investment in the United States is continuing.
“My entire career, we’ve all been screaming over the deficit,” said Mr. Ferretti, recalling lectures he heard in business school. “I’m pushing 40 years into my career, and the deficit fears just never happened. At some point it feels like worrying about the sky falling.”
While the anxieties are speculative, “the tax reform package truly does put more money in our pockets now,” Mr. Ferretti said, “so we have more money to grow the business.”
Mark Liston, president of Glass Doctor, a company in Waco, Tex., that replaces and repairs commercial, automotive and residential glass, says he hasn’t seen this much optimism in his 37 years in business. “Those of us who are outside the Beltway, we ask, ‘How is my checkbook, how are my investments, how’s my job security?’” Mr. Liston said. “And if all those are positive, I feel O.K. spending money.”
[post_ads_2]
With Democrats and Republicans fiercely battling for control in Congress, it is unclear how much business and consumer sentiment — which has also been very high in surveys — will ultimately affect voters’ choices in the November elections.
Midterm elections have tended to result in a loss of seats for the party in the White House, with the president’s popularity working to amplify or blunt the impact. The economy generally plays a supporting role.
Among Republicans, Mr. Trump’s overall approval rating is near 90 percent, although across the public as a whole, it has lingered around the 40 percent mark. The question is whether a roaring economy can soothe voters unsettled by the president’s policies or temperament, and offset any inclination to check his power.
Mr. Trump has argued that the United States has long been taken advantage of by its trading partners and that punishing tariffs will force them to adjust their practices. Those comforted by the buoyant economy may be more likely to give Mr. Trump’s negotiating style the benefit of the doubt.
[post_ads]Although the second quarter’s heady growth pace — estimated at more than 4 percent — is expected to slow markedly in the second half of the year, a drop-off that showed up after the election would have less impact.
At the same time, for many smaller businesses, sensitive political topics can often seem removed from day-to-day business life. “They’re not worried about China tariffs and trade fights with Germany,” said Mark Hemmeter, the founder of Office Evolution in Broomfield, Colo., which franchises office space for small businesses to rent. “Our clients are focused on developing business in their communities.”
What does attract notice is the perception of a pro-business mind-set in Washington.
“I think, psychologically, it’s fantastic when you have a business cheerleader in the White House; small businesses feel more comfortable with the direction,” said Mr. Hemmeter, who said he expected to double the number of franchises to 60 by the end of the year, and then double again by the end of 2019.
Whatever the political winds, Bonnie Micheli and Tracy Roemer, founders of the boutique fitness studios Shred 415 in Chicago, are enjoying the open wallets. “We feel the economy is really strong right now, especially in health and wellness,” Ms. Micheli said. “Politics are just irrelevant to our business.”
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