Hiring on Hold as Businesses Watch Talks in Washington

U.S. business activity is showing continued strength ahead of the threat of the so-called fiscal cliff, but uncertainty over the outcome of Washington’s budget talks may be keeping companies from adding to their payrolls.

The MNI Chicago Report’s business barometer for December was up for a second month, rising to 51.6 in December from 50.4 the previous month. A reading of 50 is the dividing line between expansion and contraction.

Still, the positive reading may be outweighed by discouraging figures in the sub-indices of the report, including an employment gauge that registered its lowest level since November 2009. Business owners have been hesitant to invest and hire as they await a deal in negotiations to avert automatic tax increases and government spending cuts slated to start Jan. 1.

“Employment caved in big time, and that shows reluctance to hire amid all the uncertainty we have and the fact that activity is still pretty weak,” said Sean Incremona, senior economist at 4Cast Inc. in New York, who forecast a rise in the index to 51.5.

The MNI report corroborates a stronger-than-expected reading in the Dec. 20 Philadelphia manufacturing survey, which showed the largest expansion in eight months. Yet an index of business activity in the New York area contracted in December for a fifth straight month.

“There’s just not a lot of momentum one way or another in the manufacturing sector,” said Tom Simons, an economist at Jefferies Group Inc. in New York. The industry “doesn’t look like it’s going to be fueling the recovery again anytime soon. If there is a break in the fiscal cliff talks and confidence returns quickly, that all is sort of moot, but that doesn’t look likely at this point.”

The more than three-year low in the employment measure of the Chicago report was released one week before the Labor Department’s monthly payroll data. A Bloomberg survey of 43 economists shows a median estimate of 150,000 new jobs in December compared to last month’s 146,000.

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