With consumers slow to spend, businesses are slow to hire

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CEOs aren't ready to hire yet

Profits are up and companies have cash, but executives don't see American consumers opening their wallets for years to come.

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Fundamentally, executives objected 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 executives 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 overtime. So he is weighing whether to hire two or three additional manufacturing workers.

None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring.

Sustainable growth?

Democratic leaders, however, have been arguing that additional 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 Glenview shows why more government action might offer limited help.

David Speer (no relation to Jason) is chief executive of the company, which has 60,000 employees worldwide in more than 800 business units and $14 billion in sales. He said an additional burst of fiscal stimulus from Washington might help boost economic growth for a period of months. But that is unlikely to affect his decisions about hiring and expansion, 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 undertake 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 underlying 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 action, such as steps to try to lower long-term interest rates and encourage investment, would prompt him to expand.

For large companies such as Illinois Tool Works, the price of borrowed money isn't the problem. The company had $1.3 billion 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 tomorrow for 3 1/2 percent," said Speer. "But what am I going to do with it?"

Speer is coming to terms with a new economic reality. After an extended economic boom, the nation is less than three years into the process of working out the excesses 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."