Sue Burnett has been considering opening up a new office for her staffing firm, but lately, she is having a change of heart.
“We’re being very cautious,” says Burnett, president of Burnett Staffing Specialists, which provides temporary help and placement services to companies from 11 offices, and last year had about $80 million in sales.
Revenue has fallen 4 percent to 5 percent in the past month from a year ago after being up 26 percent in the first six months of the year, she says. Tumult on Wall Street, a depressed housing market that shows no signs of improving and fresh reports of layoffs in the finance industry are all having a negative impact on her clients, which include businesses in a wide range of industries, she says. All that is starting to make her wonder if a more serious downturn is coming.
Business investment, such as opening new offices as Burnett was considering, or buying new equipment and buildings, has been a key player in the economy in recent years, accounting for more than 10 percent of U.S. economic activity in 2006.
In the second quarter, business spending provided its biggest boost to the economy in more than a year, almost equal to the contribution from consumer spending. And a key measure of business spending, orders for capital durable goods excluding defense and aircraft, rose in July at the fastest pace since March.
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Business spending is also a barometer of corporate sentiment, which can influence hiring, salaries and other factors that can affect consumers, the biggest driver of the $13 trillion U.S. economy.
But some economists are questioning if businesses will continue to be a pillar of strength given the erratic stock market, a barrage of credit crunch news, and concerns that the housing market will not pick up for quite some time. Federal Reserve policymakers are closely watching how businesses react to determine if they need to cut interest rates to help prop up the economy.
“All this noise will affect people’s outlook,” William Dunkelberg, chief economist at the National Federation of Independent Business, says.
He’s not concerned that businesses will stop spending because they can’t find financing — many have a lot of cash on hand and don’t need to borrow. The issue is if the wave of bad news will have a negative impact on business owners’ view of where the economy is headed and lead them to exercise greater caution, like Burnett.
Watching financial TV, “you think the world is coming apart,” Dunkelberg says. “The psychology there certainly is not positive.”
Moody’s Economy.com chief economist Mark Zandi says businesses will make or break the economy going forward.
“What businesses decide to do determines if we end up in a recession or not, both in terms of their investment and in terms of their hiring,” Zandi says. “If they pull back in either, confidence will completely unravel.”
