6:37pm

Tue January 8, 2013
Business

After The 'Fiscal Cliff,' Businesses Say Some Uncertainty Remains

Originally published on Tue January 8, 2013 7:23 pm

Businesses complained that the uncertainty surrounding the "fiscal cliff" froze their decisions about hiring and expanding, which hurt the economy. Washington has now managed half a deal, which settles tax issues, at least for the time being. But has that removed enough uncertainty to boost some business hiring and investment?

Vickers Engineering in New Troy, Mich., makes parts for auto companies, agriculture equipment manufacturers and the oil and gas industry. Scott Dawson, the company's chief financial officer, says the fiscal cliff deal on taxes helped his company move forward, by extending a provision that allows firms to rapidly deduct the value of new equipment from their tax bill.

"Now we can invest in more equipment, which allows us to take on more projects, which allows us to hire more people," he says. "That was one of the things that really we were waiting until they came to this agreement on how we were going to pursue our capital plans for 2013."

However, Vickers Engineering was already in an expansion mode, riding the revival of the auto industry. It has almost doubled its annual revenues to $30 million in the past two years. The fiscal cliff agreement will help the company complete a near doubling of its workforce by the end of this year.

But Dawson says another part the deal, the tax hike for people making over $450,000 a year, could be a drag. That's because Vickers' owners will pay more in taxes and have less money to invest in new equipment.

Dyke Messinger runs a small company called Power Curbers in Salisbury, N.C., which builds machines used to construct curbs and gutters for streets and highways. Messinger says he is ready to hire three or four workers.

But the reason Messinger is hiring is not the fiscal cliff deal but rather that the construction industry is getting back on its feet. "The economy has strengthened enough in the construction sector that we can foresee increased business, which will allow us to bump up hiring, bump up our spending on a variety of things that we were holding back on before," Messinger says.

Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University in Cleveland, says the situation at Power Curbers underscores that what is most important to small businesses is what is happening in their sector of the economy.

"You know, if demand is strong and the economy is growing and people are demanding products and services, then they feel confident on expanding and when that's not happening they don't feel confident," he says.

Shane says if you're not confident in the underlying economy, removing a little uncertainty about the government's fiscal situation may not be the answer to your problems.

Government contractors, especially in defense, may have the greatest uncertainty right now, says Stan Soloway of the Professional Services Council, an association of government contractors. "For the most part, I think what we're seeing are companies being very, very conservative and very, very disciplined in terms of their investments in people and in technology and so forth," he says.

What these companies want, Soloway says, is for policymakers to proceed with the second step in the fiscal cliff, cutting government spending — even if it means some pain for them.

"Rip the Band-Aid off and let's deal with this," he says. "If there's going to be substantially reduced spending, which we all expect, at least let's get it on the table, know what's coming so we can plan against it. That's when you'll start to see normalcy and investment decisions start to move forward."

But most analysts expect negotiations over spending cuts and the debt ceiling will once again go right down to the wire.

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Transcript

MELISSA BLOCK, HOST:

Businesses complained that the uncertainty surrounding the fiscal cliff debate kept them from hiring and expanding and hurt the economy. Washington has now managed half a deal, which settles tax issues, at least for the time being. NPR's John Ydstie reports now on whether that's enough to cut through the uncertainty and boost hiring and investment.

JOHN YDSTIE, BYLINE: Scott Dawson is the chief financial officer for Vickers Engineering in New Troy, Michigan. The company makes parts for auto companies, agricultural equipment manufacturers and the oil and gas industry. Dawson says the fiscal cliff deal on taxes did help his company move forward by extending a provision that allows firms to rapidly deduct the value of new equipment from their tax bill.

SCOTT DAWSON: Now we can invest in more equipment, which allows us to take on more projects, which allows us to hire more people, et cetera. That was one of the things that really we were waiting up until they came to this agreement on how we were going to pursue our capital plans for 2013.

YDSTIE: That said, Vickers Engineering was already in expansion mode, riding a revival of the auto industry. It's almost doubled its annual revenues to $30 million in the past two years. The fiscal cliff agreement will help the company complete a near-doubling of its workforce by the end of this year.

But Dawson says another part of the deal - the tax hike for people making over $450,000 a year - could be a drag. That's because the owners of Vickers Engineering will pay more in taxes and have less money to put into new equipment.

Dyke Messenger runs a small company called Power Curbers in Salisbury, North Carolina. It builds machines used to construct curbs and gutters for streets and highways, and Messenger is about to hire some workers.

DYKE MESSENGER: We're going to hire three and a likelihood or possibility of a fourth.

YDSTIE: But the reason Messenger is hiring is not the fiscal cliff deal, but rather because the construction industry is recovering.

MESSENGER: The company has strengthened enough in the construction sector that we can foresee increased business, which will allow us to bump up hiring, bump up our spending on a variety of things that we were holding back on before.

YDSTIE: Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University in Cleveland, says the situation at Power Curbers underscores that what's most important to small businesses is what's happening in their sector of the economy.

SCOTT SHANE: You know, if demand is strong and the economy is growing and people are demanding products and services, then they feel confident on expanding. And when that's not happening, they don't feel confident.

YDSTIE: Shane says if you're not confident in the underlying economy, removing a little uncertainty about the government's fiscal situation may not be very helpful.

SHANE: You peel away all the uncertainty, the question is, well, is the underlying situation that's now certain good? And we don't really have a lot of evidence that the underlying situation, once we address the uncertainty, is going to be any good.

YDSTIE: Government contractors, especially in defense, may have the greatest uncertainty right now, says Stan Soloway of the Professional Services Council, an association of government contractors.

STAN SOLOWAY: For the most part, I think what we're seeing are companies being very, very conservative and very, very disciplined in terms of their investments in people and the technology and so forth.

YDSTIE: What these companies want, says Soloway, is for policymakers to get on with the second step in the fiscal cliff - cutting government spending even if it means some pain for them.

SOLOWAY: Rip the Band-Aid off and let's deal with this. If there's going to be substantially reduced spending, which we all expect, at least let's get it on the table, know what's coming so we can plan against it. That's when you'll start to see normalcy and investment decisions start to move forward.

YDSTIE: But most analysts expect negotiations over spending cuts and the debt ceiling will once again go right down to the wire. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.