Positive signs, but doubts linger

The winning candidates in the fall elections may inherit a healthier economy than their campaign slogans suggest.
Business for companies in the Providence area continues on an accelerating, upward trajectory despite the perception that Rhode Island’s economic climate remains uncompetitive with its neighbors.
Whether local businesses are benefiting from better conditions here or taking advantage of growth spilling over from the national recovery is difficult to say.
But either way, at least by their own account, local companies are generating more sales and investing in inventory and new workers more consistently than at any time in the past six years.
Indeed, according to the Providence Business News biannual business survey, more than two-thirds of responding executives, 66.7 percent, said their net income had improved this year compared with last year. That’s the highest total since the survey started in the summer of 2008.
Even more businesses, 75.9 percent, said they expect results will be better 12 months from now, also the highest share in the survey’s history.
And 67.9 percent of companies that responded said their business activity for the quarter was better than the previous quarter, also a survey record.
“2014 has been a very good year for us with certain products in our line having done well,” said Donald A. Fox, president of Alashan Cashmere Co. in Burrillville, one of 82 companies out of 630 surveyed that responded. “One particular item [a cashmere poncho] hit the right price, the right color and right customer service at the right time, resulting in growth of 100 percent. We hit on all cylinders, but how sustainable it is, we will see.”
Reflecting that positive sales growth, Alashan recently broke ground on a new 13,000-square-foot facility with warehouse and office space in Burrillville.
Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island, says the recovery has come a long way from just two years ago, regardless of what you attribute it to.
“I’m almost ready to sing ‘Happy Days are Here Again,’ ” Mazze said. “This is really the most favorable I have seen things. The reason is the economy: both the regional and national economy [have] improved and therefore the Rhode Island economy has improved.”
“The unemployment rate in the state going down is important, and people are hearing about seeing help-wanted signs,” he added.
Still, no matter how well a group of successful companies is doing, the feeling that something is still missing, that growth should be much better, remains pervasive.
Despite a year of legislative work targeted toward helping business (such as lowering the corporate tax rate and ending the estate tax “cliff”) executives largely reserve optimism for their own enterprises instead of the larger state. “The success some businesses have here is in spite of the roadblocks in general lack of competitiveness,” Fox said of Rhode Island. “There is no incentive to keep businesses in the state, as we’re at the bottom of every national ranking, other than happenstance and being a dedicated Rhode Islander.”
Although 64.7 percent of survey respondents said they expect the Rhode Island economy will improve to some degree over the next year, one of the three most optimistic returns in the survey’s history, that’s a smaller share than the 66.3 percent who predicted improvement last winter and is flat from last summer.
More heartening is that only 1.2 percent of respondents said they expect the state’s economy will worsen significantly in the next 12 months, the lowest total in the history of the survey. (In the winter of 2008, 33.3 percent of businesses surveyed thought the state’s economy would worsen significantly, plus another 30.6 percent thought it would worsen slightly.)
Whether that ambivalence about local markets prevents companies in Rhode Island and southeastern Massachusetts from hiring or making large investments is difficult to say.
More than half the businesses surveyed, 51.3 percent, said they intend to hire new employees in the next quarter, a 2.8 percentage point improvement from the summer of 2013, but 4.1 percentage points lower than six months ago.
The share of respondents expecting to lay off workers next quarter crept up to 4.9 percent from a negligible 1.2 percent looking at layoffs last winter and zero in the summer of 2013.
At Automated Business Solutions, an office-equipment dealer and IT service provider in Warwick, President Thomas D. Finn said a large order for machines from a Connecticut customer had boosted the company’s bottom line in 2014.
“We see incremental progress and definitely no slowdown,” Finn said. “We have a good opportunity to grow, so there may be some hiring.”
Questions about why companies haven’t hired more as the economy has emerged from the recession in many industries are tied to complaints about a shortage of qualified workers.
Home health care is an area in which the demand for services is currently bumping up against the number of available workers willing to do the job for the compensation being offered.
At Bayada Home Health Care, a New Jersey-based company with four offices in Providence, flat Medicaid reimbursements for nursing services have slowed otherwise rapid growth. “Our biggest challenge is recruiting nurses,” said Ashley Sadlier, director of the Rhode Island skilled pediatric and adult nursing office. “Because we have not received a Medicaid reimbursement rate increase in six years, our nurses could go to a hospital or other facility and get $10 more per hour. We have grads who want to get into home care, but we require one year of experience.”
Despite the flat Medicaid rates, Bayada has doubled the number of nurses it has in the field in Rhode Island to 150 in the last two years, but Sadlier said that could be more if they could pay more.
Bayada hasn’t wanted to get out ahead of paying substantially more than the Medicaid reimbursement rate out of concern it will be unsustainable, Sadlier said.
Robin Ann Colombo, owner of Wedding Supplies Unlimited, which sells gowns and accessories, said business is getting “slightly better,” but still nowhere near pre-recession times.
More people seem to be getting married and having ceremonies, Colombo said, although they don’t necessarily seem to be spending more per event.
“Things are pretty good, but hopefully 2015 will be better,” Colombo said. “It’s still not where it was before 2008. That was really good.”
In general, companies remain somewhat wary of overextending themselves through investments in more employees, larger facilities or new equipment, but are slowly getting bolder.
Forty-three percent of respondents said their overall level of employment had increased from the previous quarter to the current quarter, compared with 31.7 percent in the winter and 37.9 percent last summer.
Asked whether they plan to buy any “big-ticket” items, such as capital equipment, in the next quarter, 31.3 percent said they do, a gain on 30 percent in January and 23.9 percent last summer.
Reflecting the mixed fortunes of commercial construction, 18.8 percent of companies responding said they planned to expand facilities in the next quarter, down from 20.3 percent six months earlier, but up from 16.2 percent in the summer of 2013.
CCG Construction in Cranston has felt the softness in the commercial real estate market in its business, which has been slightly better than flat in recent years, said President Brian M. Byrnes.
“It’s a little better than it was, but the market demand still isn’t really there,” Byrnes said. “There has been a little bit more financing available for large projects, but the banks are still suffering from the risk-aversion factor.”
Although its isn’t a huge issue at the moment, Byrnes said since the recession drove many workers out of the building trades, a labor-market shortage would emerge quickly if the project pipeline accelerates. They may not be commissioning new factories or buildings for headquarters like they used to, but according to the survey, companies do appear to be investing in new inventory at a rate suggesting growth.
An unusually high 37.7 percent of responding companies said their inventory of purchased materials was higher than it had been the previous quarter, compared with only 10.1 percent with lower inventory on hand. Last winter, only 28.9 percent were sitting on more inventory than the previous quarter and 25.8 percent were a year ago.
Rhode Island state government remains a popular punching bag for executives, despite what was viewed as a more favorable year on Smith Hill for business interests.
Distance from the financial crisis, implementation of the Affordable Care Act and the 38 Studios bankruptcy has, however, taken away some of the hostility toward government.
Asked what the greatest challenge to their business is, 44.3 percent of respondents said government bureaucracy, 11.6 percentage points less than last summer.
The fear of rising health care costs also dropped in prominence somewhat, with 46.8 percent of respondents choosing it as their greatest challenge, a decline of 15 percentage points from last summer.
With those concerns dropping in prominence, access to capital, diminishing customer base and energy expenses all received more votes.
In offering suggestions for what the state could do to improve business, the reduction in the corporate tax rate this summer likely pushed “corporate tax cut” to drop 7.6 percentage points from the previous summer. Improving transportation infrastructure, providing tax incentives, and reducing the cost of business all garnered more responses.
Scott Jones, president of Groov-Pin Corp.,which manufactures precision metal parts in Smithfield, said strong orders from the civilian aerospace industry and general industrial customers have offset declines in military spending.
With sales solid and material prices relatively stable, Jones said he would like to hire a few more people over the next nine months, but finding the right people has been a persistent challenge.
Short on quality, experienced applicants, Groov-Pin is instead looking to find people with the right attitude and decent math skills to train, with help from the Governor’s Workforce Board
“We are trying to cross-train folks, including existing employees, so they become advanced manufacturing technicians,” Jones said. “We would prefer they walk in with the skills, but we are finding if they have some basic math and soft skills, the rest they can learn.” •

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