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Economy

As Economic Headwinds Pick Up, Employers Lie Low

by Chris Arnold | June 8, 2012 — 2:13 PM

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Srinivas Konanki and his wife own a small laboratory device company near Boston. Concerns about the economy have left them wary of hiring new employees. (Image credit: NPR)

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Srinivas Konanki and his wife own a small laboratory device company near Boston. Concerns about the economy have left them wary of hiring new employees.

After adding a robust 275,000 new jobs back in January, job growth appears to be slowing. The Labor Department reports that the economy added only 69,000 jobs in May.

Meanwhile, despite the worst recession in generations, there are still countless small business owners plugging away around the country, seeking to expand and hire more employees.

"This year we hired two more technicians, and we hope to hire one more," says Srinivas Konanki, who employs 20 people at Pipette Calibration Services, a laboratory equipment company he owns with his wife.

The Konankis operate just outside Boston. Their company calibrates very precise lab tools called pipettes, which measure and dispense liquids.

A pipette looks kind of like an oversized ballpoint pen, with a click button on the top. But instead of pushing out a pen tip, the button is used to dispense liquid — sort of like a fancy squirt gun.

"The difference here is that you are actually measuring what you're squirting," Konanki says, rather than just indiscriminately shooting water. "And so this [measures] very accurate volumes."

Konanki is expert in the workings of pipettes. His wife, Manjula Konanki, jokes that he could talk about them for hours.

But get them talking about their business, and the Konankis take a more serious tone.

"We, as a small business, have been very careful as to how we spend our money," Srinivas says.

It's All About Optimism

For any business, job growth has a lot to do with confidence. To hire new workers, an entrepreneur needs to be optimistic that business will keep picking up.

The economic environment has given business owners plenty of cause for caution. One thing troubling Srinivas is the ongoing economic turbulence in Europe. Many European countries run research labs in the Boston area, and "when they make cuts, they make cuts all over," he says. "And when that happens, we see our business cut down."

His other big concern is potential cutbacks in U.S. government spending, particularly potential cuts to the National Institutes of Health.

That's because, at the end of the year, as part of what's called "sequestration," the NIH could be hit with an across-the-board 8 percent funding cut.

Sequestration will only happen if Congress is unable to hit budget-cutting targets it imposed on itself through legislation last year. But a failure to reach those targets would trigger dramatic broad-based cuts like those proposed for the NIH, among numerous government agencies.

"Even a couple of percentage points funding [cuts] to the NIH — it definitely makes a big difference to all the labs out here," Srinivas says. "That will definitely affect our business."

Fear Of The 'Fiscal Cliff'

Betsey Stevenson, a labor economist with the University of Pennsylvania's Wharton School of Business, says Srinivas' concerns are very real.

She agrees that Europe could be creating a headwind on hiring in the U.S. and says many other businesses are worried about what actions Congress might take later this year as it decides whether or not to extend the Bush-era tax cuts and wrestles over unemployment benefits and required spending cuts.

All these decisions facing Congress at year's end have been collectively dubbed the "fiscal cliff."

"Congress is saying, 'We're going to make this difficult,' " Stevenson says. That sends a signal to all the actors in the economy, she says, that "there is potential for real damage to our economy coming in the future, and you should prepare for it today."

Some Green Shoots

Despite all these unanswered questions, the U.S. is still managing to add new jobs each month.

"We've had slow growth, but it is growth," not losses, says David Kotok, chief economist at Cumberland Advisors, a Florida-based investment advisory firm.

Kotok acknowledges that job growth has slowed since the start of the year. But while he says that's disappointing, he also sees reasons to be optimistic.

"The manufacturing sector is growing in the United States," Kotok says. As it does, he continues, it creates higher-paying jobs. The energy sector is also doing well, he says, with rapid growth in natural gas exploration promising to create many more well-paid work opportunities.

"And the third piece," Kotok says, "is the gradual stabilization of housing. It's happening slowly — but it's happening."

If that trend continues, that eventually means more jobs for carpenters, electricians and many other people who work in related industries.

Kotok, the chief investment officer for a firm that manages billions of dollars, has to put his money where his mouth is when it comes to reading the economic tea leaves. And he says he's placing his chips on a slow but continued recovery for the U.S. economy and for employment.

Source: NPR [http://www.npr.org/2012/06/08/154588451/as-economic-headwinds-pick-up-employers-lie-low?ft=3&f=1003,1004,1007,1013,1014,1017,1019,1128]

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ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

AUDIE CORNISH, HOST:

And I'm Audie Cornish. American businesses are hiring, but the pace is slowing down and that may be a sign of trouble for the economic recovery. The U.S. gained just 69,000 jobs in May. We were seeing much better growth at the start of the year.

NPR's Chris Arnold reports on what's behind this change and what it means looking forward.

CHRIS ARNOLD, BYLINE: It's pretty amazing how many different kinds of businesses there are in this country. If there's a need out there of any kind, some entrepreneur will start a company. And, despite the worst recession in generations, there are still thousands of small businesses plugging away, trying to grow and hire more people.

SRINIVAS KONANKI: This year, we hired two more technicians and we hope to hire one more.

ARNOLD: Srinivas Konanki runs a business with his wife just outside Boston. They employ 20 people and what they do is they calibrate just one type of scientific laboratory equipment. They work on what are called pipettes, which measure and dispense liquids. The company is called Pipette Calibration Services.

KONANKI: What I have in my hand is a single channel pipette. It's a manual pipette. As you notice, I can change the volume setting.

ARNOLD: So this is basically like a fancy squirt gun. I mean, you know, you just suck up a little water and squirt it out. Right?

KONANKI: Squirt it. The difference is, here, you actually measure what you're squirting, whereas, in a squirt gun, you're just shooting it. And so this is very accurate volume.

ARNOLD: Manjula Konanki says her husband knows a lot about pipettes.

MANJULA KONANKI: Srinivas can talk to you for a few hours about that if you want to. Yeah.

ARNOLD: But a cup of coffee and an artful change of subject later and we get down to the matter at hand, job growth. And, for any business, that has a lot to do with confidence. If you're going to hire somebody, you have to be optimistic that business will keep picking up.

KONANKI: And we, as a small business, have been very careful as to how we spend our money.

ARNOLD: And, lately, there's been plenty of cause to be concerned. The economy in Europe is looking worse again. Many European companies have research labs right around here, around Boston.

KONANKI: And when they make cuts, they make cuts all over and when that happens, we see our business cut down.

ARNOLD: The other big concern for Srinivas is cutbacks in U.S. government spending. He's worried about whether the NIH will wind up getting cut. That's the National Institutes of Health.

KONANKI: Even a couple of percentage points funding if they cut to the NIH, it definitely makes a big difference to all the labs out here. And that'll definitely affect our business.

ARNOLD: And these are the same things that many other companies and economists are thinking about, too.

BETSEY STEVENSON: The risks he talked about were risks of Europe.

ARNOLD: Betsey Stevenson is a labor economist with the University of Pennsylvania's Wharton School. She says Europe could be creating a headwind on hiring and she says many other businesses are worried about what the U.S. government's going to do as we approach what's called the fiscal cliff at the end of the year.

Congress needs to decide if it's going to extend the Bush tax cuts, what to do with unemployment benefits and required spending cuts. There's all sorts of things Congress needs to deal with.

STEVENSON: Congress is saying we're going to make this difficult. You know, this sends a signal to everyone in the economy that there's a potential for real damage to our economy coming in the future and you should prepare for it today.

ARNOLD: Still, even with all these question marks, the U.S. is managing to add some jobs every month.

DAVID KOTOK: We've had slow growth, but it is growth, not shrink.

ARNOLD: That's David Kotok, the chief economist at Cumberland Advisors. He says, yes, in recent months, we've been adding fewer jobs than we were at the start of the year and that's definitely disappointing, but Kotok actually sees some reasons to be optimistic.

KOTOK: I see three sectors now doing better. The manufacturing sector is growing in the United States and, as it does, it produces a higher paying job.

ARNOLD: Same thing, Kotok says, goes for the energy sector. The rapid growth in natural gas exploration will mean a lot of work that pays well.

KOTOK: And the third piece is the gradual stabilization of housing. It's happening slowly, but it's happening.

ARNOLD: And, at some point, that means more jobs for carpenters, electricians and lots of other people. Kotok is the chief investment officer for his firm. It manages billions of dollars, so he has to put his money where his mouth is on this stuff and he says he is placing his chips on a slow, but continued recovery for the economy and employment.

Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright National Public Radio.

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