SATURDAY, AUGUST 21, 2010


Wary businesses are bracing for ‘a different era’


economy from A1


need,” said Bill Larsen, president of Larsen Packaging Products in Glendale Heights, Ill. Now, he said, “they don’t know what they’re going to need and when they’re going to need it.” Larsen’s company sells boxes and other packaging materials to all types of companies, so its sales closely reflect overall economic activity. Those sales have been swinging widely from month to month.


When companies decide


whether to hire workers or invest, say, in a new factory, this kind of volatility and uncertainty about future conditions makes for a strong disincentive. During the first half of this


year, capital expenditures by business have been a bright spot in the economy, growing at more than a 20 percent annual rate. But executives say little of this re- flects expanded capacity. They say firms are spending primarily to replace equipment they had held onto longer than usual last year to conserve cash. David Casper, who heads com- mercial banking at Harris Bank, which has more than 300 branch- es in the Chicago area, estimated that the firm receives three loan applications from businesses looking to replace outdated equipment for every customer seeking to expand productive ca- pacity. “These decisions are not being made lightly,” he said. “We’re not in normal times yet.”


Small-scale investments


From his office in a leafy office park in suburban Lake Forest, Ill., Robert W. Crawford Jr. is one of the executives making such tough decisions. He founded Brook Furniture Rental in 1979 to rent sofas, dining room tables and such, mostly to executives on a temporary assignment. The firm now has 500 employees in seven markets. At first glance, Crawford, 71, appears to be on an expansion binge; his company has roughly doubled its purchases of furni- ture this year. But that’s not be- cause of any grand expectations for the future. Instead, he’s mak- ing up for last year, when the company cut furniture purchases 40 percent and ran down its in- ventory. The large spending bump this year is meant mainly to get inventory back up to nor- mal levels. And like the corporate sector as a whole, when Crawford gives the green light to an investment, it’s usually designed to lower the need for labor. Instead of expand-


ing capacity, such as building a bigger distribution center and having to hire more workers to fill it, he is looking to serve exist- ing customers more efficiently. That means, for example, small-scale investments in soft- ware and new packing pro- cedures so that furniture-delivery crews spend less time in traffic and can get seven or eight stops done in a day, compared with five or six before. He has thus reduced staffing this year despite an in- crease in business. “Every investment decision we


make is more careful and me- thodical than it was just a few years ago,” said the gravelly- voiced Crawford. “Now we go in smaller, and take time to build out capacity. We’re being much more precise and conservative about growth.” By contrast, for most of the 31 years he has been in business, it has paid to be bold. As across cor- porate America, risk-taking was rewarded. Those who bet on growth to justify hiring more workers and buying more ma- chinery often profited at the ex- pense of more timid competitors. But executives now project more gradual economic growth and are making less ambitious in- vestment decisions. At Brook Fur- niture, that means entering new markets with a 20,000-square- foot distribution center, rather than one three times that size as before. “We’re not taking it for granted


that growth will be there,” said Crawford.


Unhappy with Obama What role is government policy


playing in fostering corporate caution? The executive class in the Chi-


cago region is none too pleased with many of the policies of Presi- dent Obama, their former home- town senator. They criticize his willingness to let Bush-era tax cuts expire at year’s end for households that make over $250,000 and allow the capital gains tax rate to increase. They dislike aspects of his landmark health-care law, and some fear that the financial overhaul legis- lation enacted this summer will make it harder for them to get loans.


“Congress has been very tough on businesses,” said Jason Speer, chief executive of Quality Float Works of Schaumburg, Ill., which makes the industrial equivalent of toilet ball floats, items that sell for up to $1,200 and are used to measure water levels in farm and industrial equipment. The com- pany also makes the metal balls that go on the top of flagpoles.


KLMNO


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Economy & Business


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PHOTOS BY CARLOS JAVIER ORTIZ FOR THE WASHINGTON POST


An employee at the Quality Float Works factory in Schaumburg, Ill., tests products. “Congress has been very tough on businesses,” the company’s chief executive said. Other observers say firms cannot anticipate what consumers will do, affecting corporate decisions.


Fundamentally, executives ob-


jected to Obama’s policies on the grounds they would make the United States a less competitive place to operate in the long run. But when Speer and other ex-


ecutives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of over- time. So he is weighing whether to hire two or three additional manufacturing workers. None of the executives inter-


viewed linked a specific new gov- ernment initiative with a specific decision to refrain from hiring.


Sustainable growth? Democratic leaders, however,


have been arguing that addition- al government spending could further stimulate the economy, protecting jobs and perhaps even prompting new hiring. Some economists, meantime, have urged the Federal Reserve to goose the recovery by embarking on an aggressive new effort to pump money into the economy. But Illinois Tool Works in Glen-


view shows why more govern- ment action might offer limited help. David Speer (no relation to Ja- son) is chief executive of the com- pany, which has 60,000 employ- ees worldwide in more than 800 business units and $14 billion in sales. He said an additional burst


of fiscal stimulus from Washing- ton might help boost economic growth for a period of months. But that is unlikely to affect his decisions about hiring and ex- pansion, which Speer said are based on expectations for sales over years to come, not just the immediate future. As long as U.S. consumers remain deeply strained, he is unlikely to under- take aggressive expansion. More fiscal stimulus “might help make things a little better for a couple of quarters, but I’m not sure it would get at the un- derlying economic issue,” Speer said. “The core question is: How do you get consumers back on their feet. We need growth in a sustainable way, not another Band-Aid.” Nor is it clear that new Fed ac- tion, such as steps to try to lower long-term interest rates and en- courage investment, would prompt him to expand. For large companies such as Illinois Tool Works, the price of borrowed money isn’t the prob- lem. The company had $1.3 bil- lion in cash on its balance sheet at the end of June, up from $743 million at the end of 2008. Lower interest rates wouldn’t make much of a difference, either. “I could borrow $2 billion to- morrow for 31


⁄2 percent,” said


Speer. “But what am I going to do with it?”


Speer is coming to terms with a


new economic reality. After an ex- tended economic boom, the na- tion is less than three years into the process of working out the ex-


Lester Roundtree was recently hired at Quality Float Works.


cesses of that period. “It took us a decade to get in the ditch we are in,” Speer said. “There isn’t going to be instant gratification to get us out of it.


We’re going to have to get used to a lower growth economy, and that is going to be a big adjustment for all of us.”


irwinn@washpost.com


Some Fed officials losing spots at annual Jackson Hole retreat By Scott Lanman Some Federal Reserve officials


accustomed to an automatic in- vitation to the central bank’s an- nual mountainside symposium in Jackson Hole, Wyo., came up empty-handed this year. In recent years, the Federal Re-


serve Bank of Kansas City, which hosts the meeting, has welcomed the president and research direc- tor from the 11 other regional banks. For this year’s conference, scheduled to start Thursday, each regional bank may only send one of the two officials. Also, unlike in previous years, the New York Fed’s markets chief, currently Brian Sack, isn’t invited. The change will help foster de-


bate and include more non-Fed attendees such as central bankers from abroad, said Diane Raley, a Kansas City Fed spokeswoman. “In weighing the demand for


participants outside of the Feder- al Reserve, this was seen as a way to continue representation from each reserve bank while opening some invitation slots to new or additional attendees,” said Raley, a senior vice president who has


helped run the event for 10 years. But Robert Eisenbeis, a former Atlanta Fed research director, said the move deprives many re- search officials, who serve as top policy advisers and attend Fed in- terest-rate meetings, the chance to make important global con- tacts. “Making those contacts per- sonally with people from the international community is espe- cially valuable,” said Eisenbeis, who has attended the event in past years and is now chief mon- etary economist with Cumber- land Advisors. “It’s one of the few chances that a lot of the people have to do that.” Central bank officials from more than 35 countries usually travel to the Jackson Lake Lodge to mingle with leading monetary policymakers and thinkers. Last year’s attendees included José De Gregorio, Chile’s central bank president; Tito Mboweni, then- governor of the South African Re- serve Bank; and Richard Berner, Morgan Stanley’s co-head of glob- al economics. Between debates over new re- search and crisis management under elk-antler chandeliers, at-


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Bernanke and European Central Bank President Jean-Claude Tri- chet are scheduled to speak. — Bloomberg News


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