Confidence climbs, spending follows

If Rhode Island and the region have not emerged completely from their near decade-long economic funk, they certainly have pulled themselves out of the intensive care ward, at least according to the latest installment of the Providence Business News biannual Business Survey.
For starters, a greater number of businesses contacted for the winter 2014-15 edition of the survey are leaning toward making big-ticket capital expenditures than ever before. Still, despite that and other positive responses to the survey, the business community remains wary – of government as well as the slow pace of the recovery.
And why not be confident?
Money appears to be flowing, the price of oil is down, consumer confidence is up and the state’s unemployment rate continues to drop. A new, self-proclaimed pro-business, pro-economic-development governor has taken office after running a campaign that still echoes to the sound of, “Get Rhode Islanders back to work.”
The optimism brought on by a new administration, paired with a generally bullish U.S. stock market, has instilled bits of confidence into the region’s businesses.
“Overall my business is well up,” said Blair Fish, president of Fish Advertising Inc., in East Greenwich. “I know that in the last three years, from 2012 through 2014, revenue grew by 164 percent, and I don’t know if we’re an anomaly, but we just hired a new person and we’re in growth mode.”
Fish’s success does not appear to be an anomaly.
According to the Business Survey, 73.4 percent of all executive respondents said their net income in winter 2014 was greater than the year before, marking the highest the results have ever been since the survey began in the summer of 2008.
A year ago, 59.5 percent of respondents said earnings had increased, both in contrast to the 34.3 percent of executives who reported profit increases at the survey’s lowest point in the summer of 2009.
In addition, nearly three-fourths – 74.7 percent – of respondents think business this year will be better than last.
“I’m very optimistic about growth this year,” said Fish, one of 84 executive respondents out of 592 businesses surveyed. “We’ve not only turned a corner, but I think it’s going to be a positive year, I really do.”
Business owners also reported a greater amount of new business. About 66 percent of all respondents said new business, or orders, last quarter was greater than the preceding quarter, which is a full 13 percentage points higher than at the same time last year. Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island, says there’s no question business confidence is improving throughout the state and a strong U.S. economy is certainly playing its part.
“When these folks took the survey, in December, the stock market was hitting numbers no one was predicting, so people were pretty confident,” Mazze said.
With more revenue, however, comes more decisions on how to reinvest. This year, according to the survey, business owners are leaning toward first quarter big-ticket expenditures. About 71 percent of survey respondents said they would, or are considering, investing in capital equipment. The percentage of “no” respondents decreased to a survey record low of 29 percent – about a 17 percentage point decline from the same time last year.
Russell Morin, of Russell Morin Fine Catering, is headquartered in Attleboro, but he does about 75 percent of his business in Rhode Island. Morin says his business has increased by about $1 million each year for the last four years, and he just invested $250,000 into a new space in Newport to expand his services in that region.
“We have our own propane tank that we use to fill our own propane containers. We also bought an ice machine, and a freezer to put the ice in,” Morin said. “We bought a new steamer, which makes us more efficient, and we’ve invested into the big, beautiful office in Newport.”
Russell Morin Fine Catering is a 103-year-old family business, which during the peak months of the year – May to October – employs about 450 people. Morin says he is also planning to hire 20 new full-time employees this upcoming season.
About 48 percent of survey respondents said they planned to hire new employees this quarter, a number that’s trending downward since its record peak a year ago at 55 percent. Mazze, however, remains optimistic about the state’s hiring trends and says the numbers could have dropped because more businesses are considering big-ticket expenditures – capital that could otherwise be spent on personnel. “The strong that survive have to stay up to date with the equipment, and in the past few years, very few companies were updating their equipment,” Mazze said.
Another category of expenditure that is a marker of business success is real estate. In the last six-to-eight months, Neil Amper, vice president of Capstone Properties Inc., has noticed an uptick in the amount of small businesses looking for space.
“Rhode Island is a small-business state,” Amper said, adding that he’s also receiving more inquiries from new business. “I’m getting calls from people who suddenly want to start a new business, and I haven’t seen anyone do that in about five years.”
While the survey is not statistically significant, it does offer a window into how businesses are feeling about the region’s economy. And changes in direction of that sentiment can be seen to be reflective of the overall zeitgeist. The 84 companies that returned the survey included a mix of construction contractors, financial professionals, information and technology companies, law firms, marketing groups, manufacturers, hospitality services and others.
Among the responses, prevalent through all industries, was a clear frustration about the cost of doing business in Rhode Island, which was characterized through the comment section of the survey.
Businesses described the state as being unfriendly, anti-business, over-taxed and over-regulated. The sentiment could be considered boiler-plate rhetoric, which is often heard during discussions of business versus government, or private versus public, but Mazze – and several businesses – think Rhode Island government has a tendency to get in its own way and hurt business more than help.
“We still have to work very hard to make Rhode Island business-friendly,” Mazze said.
Donald A. Fox, president of Alashan Cashmere Company LLC in Burrillville, is getting ready to move into a new, 13,000-square-foot facility. Last year brought him record sales, he says, but most of his trading in cashmere raw materials and finished products is done in other states and overseas.
Fox is frustrated with how Rhode Island treats businesses and that pushed him to look across state lines when he was considering his move into new space. He says that if he had based his decision purely on financial criteria, he would have left the state. “I say that with a heavy heart,” Fox said, adding that Rhode Island is – and always has been – his home, which is part of why he wanted to stay. “Our fee structures are too high, our regulatory practices and licensing [are] too cumbersome. … There’s no drive to consolidate or bring down costs in this state.”
With a new administration often comes new hope – at least at first. Thus, despite winning Rhode Island’s gubernatorial race with less than 50 percent of the vote, Gov. Gina M. Raimondo’s pro-business stance has resonated, somewhat, with businesses.
“I’m cautiously optimistic,” Fox said, when asked about the state’s new governor. “Is she a step up over [former Gov. Lincoln D. Chafee]? I believe so, but she’s been in office for a month.”
Taxes, a weak economy, health care costs and government fees/bureaucracy are the top four challenges businesses face in Rhode Island, according to the survey, but energy costs are trending upward.
Nearly 22 percent of respondents listed energy costs as a top challenge, a jump from 13.3 percent last year. The increase is likely connected to National Grid’s recent rate increase for its standard offer, which was announced just before this survey was taken.
“The cog in the machine right now is the energy issue,” Mazze said, adding that health care costs are also discouraging new business everywhere. He thinks President Barack Obama’s health care reform legislation, the Affordable Care Act, will address some of this issue in the next few years.
Health care costs continue to be companies’ largest expense increase, as 71.1 percent named it No. 1 in the last five years, according to the survey.
Looking forward, executives’ 12-month outlook on Rhode Island’s economy is positive, as 66.6 percent of respondents say it will either improve slightly (61.5 percent), or significantly (5.1 percent). Business owners, however, aren’t quite ready to call it a place of comfort or become overconfident.
“We’re turning a lot of business away because we can’t keep up,” Morin said. “We’re trying to make better infrastructure, so we can take on more business, but we don’t want to get ahead of ourselves.” •

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