Businesses believe state pointed in right direction

 / SOURCE: PBN RESEARCH/PBN CHART: LISA LAGRECA
/ SOURCE: PBN RESEARCH/PBN CHART: LISA LAGRECA

Rhode Island’s slow climb from the economic basement it fell into during the Great Recession has lagged neighboring states’ recoveries, but most regional business owners are optimistic about the direction the state is heading in, according to results from the most recent Providence Business News biannual business survey.

Indeed, compared to last year a greater number of respondents to the summer 2015 survey believe both the Rhode Island economy and their respective businesses will improve in the next year. The number of employers planning for new hires in the next quarter marks the second most among respondents since the survey began in the summer of 2008.

Despite a political push led by Gov. Gina M. Raimondo to “jump-start Rhode Island’s economy,” however, the state can’t seem to shake its reputation of being anti-business, which is perpetuated by repeatedly appearing at the very bottom of national surveys that examine economic indicators, such as tax rates, employment and overall business friendliness.

So why does optimism shine brightly among survey respondents in a state with a reputation of being unfriendly to business?

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One reason, perhaps, is that many survey respondents are business owners who’ve successfully weathered what’s been one of the worst economic downturns the state has ever seen, according to Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island.

“The businesses themselves are stronger, they are local, and they know that things are getting better,” Mazze said.

The budding optimism, Mazze said, is encouraged by the most recent legislative session, which he called “one of the greatest love affairs seen in modern time.” He points to the relationship created between the executive branch and the legislative branch, which produced a state budget lauded nationally. The budget process ranked No. 1 in New England and seventh in the nation, according to the Washington, D.C.-based research and advocacy group Federal Funds Information for States. The research group based its rankings on a slew of indicators, including whether a state’s budget is balanced, how much power a governor has over spending, financial reserves and how easy the budget is to understand.

“I think everyone [in government] is moving in the right direction,” Mazze said.

Another reason, he adds, is that with the exception of the recent U.S. stock market volatility, which began after participants responded to PBN’s survey, a bullish U.S. economy has fueled an upbeat sentiment among business owners.

And he’s not the only one who’s noticing it.

“We’ve come a long way since those dark days [in 2008-09],” said James J. Raiola, principal with Warwick-based James Raiola & Associates.

Raiola, one of the 75 executive respondents out of 606 businesses surveyed, is in the employee-benefit business, offering financial services and products in Rhode Island and Massachusetts. He said many of his clients are hiring, which is “far outpacing any terminations.

“It started to uptick in 2014 and it’s continued today,” Raiola said.

Raiola’s anecdotal evidence is supported by survey results, as more than half – 52.7 percent – of respondents say they plan to hire new employees in this year’s third quarter and another 27 percent are still considering it, according to the survey. The number of respondents who said they wouldn’t hire new employees – 20.3 percent – is the lowest it’s been since the survey started in 2008.

Concurrently, 91.7 percent of respondents said overall employment either increased (37.5 percent) or remained the same (54.2 percent) compared with the preceding quarter, representing a combined 3.1 percentage point increase compared with the survey last year.

The trend appears to be picking up steam, as 22.5 percent of respondents said the salaries of new hires increased the most as a percentage of overall expenses in the last five years, which is 9.7 percentage points more than a year ago.

Raiola, who is planning to hire, says there’s still some hesitancy among other employers, a signal to him not everyone is convinced of an economic recovery.

“It’s definitely far from boom time,” Raiola said. “It’s much more of a measured approach, and the numbers that come out bear that sentiment, so we need to go from a measured approach to a healthy approach and then everything else will follow suit.”

Nationally, job openings jumped 430,000 to 5.75 million in July, marking the largest gain since April 2010, according to the most recent U.S. Labor Department data. The general sentiment among economists is that the jump signals employment around the country will likely keep increasing.

In Rhode Island, where the unemployment rate was 5.6 percent in August, jobs and the economy have been firmly pushed to the forefront of state leaders’ political agendas, and Mazze expects they’ll stay there.

“It’s going to be very tough for this executive branch and the legislative branch to move away from economy and jobs. That’s going to be the flag that is going to continue to fly over the state,” Mazze said. “Bad things could still happen, but once you start going around and you start talking about it, it’s hard to get it out of your vocabulary.”

Regional business owners appear to be banking on it, as nearly all respondents said their individual businesses in the next year would either improve (81.1 percent) or remain the same (17.6 percent). The remaining 1.3 percent of respondents said it would likely worsen.

Similarly, 94.5 percent of respondents said Rhode Island’s economy will either improve significantly, slightly, or remain the same in the next year compared with 5.5 percent of respondents who believe it will either worsen slightly or significantly.

The 67.1 percent of respondents who said Rhode Island’s economy would improve slightly or significantly is the highest since the survey started in 2008. (In winter 2008, 17.6 percent of respondents said Rhode Island’s economy would improve slightly or significantly).

Rhode Island businesses also appear to be doing better financially, as earnings among respondents increased compared with a year ago.

Sixty-nine percent of respondents said net income rose in the past year, representing a 2.3 percentage point increase from summer 2014.

While profit rose among respondents year over year, it’s worth noting that it fell 4.4 percentage points compared with the winter survey – 73.4 percent – which marks the first decrease since the winter 2011 survey. Mazze says the drop could be attributable to the cyclical nature of sales from a retail-heavy winter to a hospitality-driven summer, adding that the historic snowfall this last winter also hurt sales, as it kept consumers and their money at home.

Increased profit means business owners potentially have more to reinvest, and more survey respondents say they are at least considering making a third-quarter big-expenditure purchases, compared with last summer.

Indeed, 60.6 percent of respondents said they would, or are considering, investing in capital equipment, representing a 6.8 percentage point increase from summer 2014.

The interest, however, has fallen since the winter (63.3 percent), which Mazze says could have something to do the cyclical nature of industries. The decrease from the winter could also be attributable to the increased interest in new hires, he says.

Mazze added more business owners are also considering leasing equipment as a viable option, which might not show up in survey results.

“A lot of business owners are leasing equipment because it’s another way of financing,” Mazze said.

Fewer business owners – 16.4 percent – say they plan to expand facilities in the third quarter of this year compared with last year (18.8 percent), but some respondents, such as Navigant Credit Union President and CEO Gary E. Furtado, have taken the recent increase in economic activity as a positive sign and made some internal capital improvements with an eye on expanding.

The Smithfield-based, state-chartered credit union reports an increased number of members and an uptick in lending, as the housing market balances out, according Furtado. Navigant went through a major computer-system upgrade last year and is building a new branch in the Slatersville village of North Smithfield.

Furtado says much of the positive sentiment he sees around the state stems from Raimondo’s administration, which he says has been more responsive to Navigant and the needs of the banking industry compared with prior administrations.

“Is that [positive sentiment] filtering down to every person who’s working 40 hours a week? I am not sure, but I think overall there’s a better feeling in the state,” Furtado said.

James “Jim” Tice, owner of Warwick-based Pipe Dreams LLC, started his wholesale distribution business of exhausts and catalytic converters in 2004. The business really took off during the recession because, as Tice put it, “In a recession, people fix their cars,” rather than buy new ones.

Pipe Dreams has realized a 15 percent to 20 percent increase in sales each year since the economic downturn, but Tice says he hasn’t seen the same attention from state officials as Furtado has.

“It’s hard doing business here, there’s no other way to say it,” Tice told PBN. “If you have to interact with the state, they either don’t know or they don’t care.”

Tice says he contributes to Rhode Island’s economy as one of thousands of small-business owners in the state, but feels overlooked in comparison to the smaller percentage of big businesses looking for financial incentives to either stay or come.

“Stop trying to get all these big businesses to come here,” he said. “If we’re [more than half] of all the employment in the state, why isn’t the state taking care of” small businesses?

Government fees/bureaucracy, taxes, a diminishing customer base, health care costs and energy are among the top challenges business owners say they face in Rhode Island, according to the survey. These specific challenges top survey results consistently year over year, although more respondents in recent surveys have indicated energy costs as a growing challenge.

Respondents say eliminating the corporate tax, making it easier to do business in the state and providing more tax incentives and credits are the most important actions the state could take to support businesses in the year ahead.

But the overall percentage of business owners who are looking for support from the state has fallen compared with past surveys. And the 26 percent of respondents saying the state should support workforce-development programs and do a better job educating the workforce is at its lowest point since summer 2010.

The survey, although not statistically significant, offers a window into how businesses are feeling about the region’s economy and changes in that sentiment can be seen as reflective of the overall business climate.

“When you look from summer of ’08 to now, we’ve been through a significant recession and virtually no growth in population, but the businesses responding now are stronger than they were at the beginning,” Mazze said. •

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