Business Faces Its Own Cliff

Forget the media's slobbering infatuation with the so-called fiscal cliff.  Ominous signs indicate the nation's economy may be skidding into another recession irregardless of how the political theatre plays out in Washington.

First, no one argues the fiscal cliff presents a clear challenge.  Deep budget cuts and tax increases will kick-in next year unless Congress and the president strike a deal.  But Congress and the president created the crisis because they were unable to reach a compromise months ago.  

With most media eyes fixed on Washington, a financial caldron is simmering unnoticed. 

Businesses throughout the country are losing steam.  Corporate profits during the third quarter were surprisingly weak.  Only 36 percent of the companies reported earnings that exceeded investor expectations for the months July through September.

Perhaps, they doesn't sound like such a big deal.  However, Wall Street economists point out the norm is for 56 percent of the companies to perform better than estimates.  Even more disturbing, business revenues have dipped one percent below year-ago levels after steadily rising throughout 2012.

It's true that profits inched upward at many blue chip firms, but improvements have been generated by reductions in both costs and people. Even with the austerity measures, profits rose a scant 1.1 percent from last year's third quarter.  That is the lowest business growth in three years.

The laggard results portend a dramatic economic shift.  In the third quarter of 2010, companies averaged earnings growth of 36.6 percent.  In 2011, the increase was 17.3 percent for the same quarter. This quarter's 1.1 percent hike pales by comparison. Business momentum has stalled.

The list of companies reporting slowing sales and revenues read like a who's who of American business.  Microsoft, General Electric, McDonald's, Google, Intel, IBM and Caterpillar all delivered disappointing financial numbers.

In an omen of things to come, many companies have begun shedding jobs.  Since the year began, firms have laid off 352,185 workers.  In October, job cuts spiked an alarming 41 percent, according to Challenger Gray and Christmas, the nation's oldest outplacement counseling company.  

Don't expect the outlook to change in the fourth quarter.  A Business Roundtable survey of corporate executives found their economic outlook had plummeted to its lowest level since 2009.  
Some politicians and business people have blamed the fiscal cliff for the current business slump.

Their explanation is fallacious because most businesses already assume a compromise will be reached to avoid a catastrophe, according to surveys of corporate executives.  The truth is a few businesses are blaming the "cliff " to shift the responsibility for their management's poor performance.   

A more plausible explanation for declining results is the impending implementation of Obama Care. Businesses are reluctant to hire and expand because of costs associated with the plan.  For instance, many service, hospitality and retail industry firms are trimming employee hours to avoid the threshold that requires mandatory insurance coverage, according to workforce strategy firm Mercer.   

Despite the looming crisis, Washington bureaucrats keep cranking out cheery employment and economic figures.  Declining business sales and revenues are reality, not some government report.  The nation's economy is sinking into its second recession in less than a decade, no matter what Washington's flattering numbers say. 

Unless the business climate improves soon, the fiscal "cliff" may seem more like a mere bluff.