Employment is up. Optimism about the economy is rising.

Business owners maintain a bullish outlook on Rhode Island’s economy, but there are signs the optimism has been tempered by turbulence at the national level and slow-paced economic progress at home, according to results from the 2016 winter installment of the biannual Providence Business News survey.

Indeed, optimism about future business and Rhode Island’s overall economy has risen to unprecedented levels among respondents, dating back to when the survey began in the summer of 2008. Concurrently, employment levels among responding firms have reached an all-time high. But there’s no doubt the confidence is growing at a slower pace compared with recent surveys, and not all results are showing positive trends.

Business activity and profit fell among respondents compared with last winter’s survey, breaking a consistent growth trend that started back in winter 2012 and winter 2011, respectively. And Rhode Island business owners are beginning to get antsy about the general lack of shovels in the ground throughout the region, despite Gov. Gina M. Raimondo’s hyper-focused approach to attracting businesses and spurring economic development.

Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island, helps PBN analyze the data and says the results are beginning to move in the wrong direction.

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Sixty-one and three-tenths percent of respondents said their current quarter’s new business was greater than the previous quarter, but that represents a 5 percentage point drop compared with the previous winter. Additionally, 44.2 percent of respondents said business activity had either flattened out or worsened compared with the previous quarter, marking a year-over-year increase of 12 percentage points.

“We’re still on track in terms of businesses feeling better, however, the results for this past winter are worse than they were in previous winters,” he said.

The former dean of the College of Business Administration at URI attributes the cooling effect to two major themes: national and international macro and political trends, along with a general lack of results realized locally.

Some of the economic turbulence seen at the national level started during last year’s fourth quarter. Tempered household spending and a cutback on capital investments slowed gross domestic product growth to a 0.7 percent annualized rate, compared with a 2 percent gain in last year’s third quarter. Moving into the new year, volatility hit the equity markets, caused largely by slowing markets abroad and plunging oil prices, which led to cutbacks at some energy companies.

Locally, “There’s been a lot of talk about economic-development projects, but no projects to speak of. I hear more and more from businesspeople who’re losing confidence in the legislature and the governor,” Mazze said. “The Rhode Island economic-development agenda could best be summarized as, one step forward, two steps back.”

STUCK IN NEUTRAL?

Indeed, 2015 came with some bumps and bruises, as state leaders struggled with a pitch from the Pawtucket Red Sox to relocate its home stadium to Providence. The ongoing debate about whether the state should assess a truck toll on state highways also has been a point of contention. And while Raimondo’s RhodeWorks plan to pay for a large infrastructure repair program is now law, there are promises that come election time, it will cost those who voted in favor of it.

Attracting new businesses and spurring economic development to create high-paying jobs has been the focal point of Raimondo’s political agenda, but there’s been an arguable lack of physical results, according to Mazze. As evidence, he points to the absence of cranes in the sky throughout the state, especially within the former I-195 land in Providence.

Not everyone sees it that way.

“We’re optimistic for 2016,” said George J. Charette III, president and CEO of Pawtucket Credit Union.

“We have a little bit higher growth goals for loans and deposits in 2016,” he continued. “Last year we got off to a slow start because of the weather. This year we’re hoping to not have that kind of slowdown, as the weather has been a little more temperate.”

Charette, who heads the state’s largest credit union – with assets totaling $1.7 billion – is one of 83 executive respondents out of 603 businesses surveyed. The survey comprises a cross section of industries, including financial services, real estate, hospitality, retail and more. The survey, although not statistically significant, does offer a window into changes in business sentiment, which in turn are helpful in understanding the overall business climate.

Charette is among the record-breaking number of respondents who believe their businesses, along with the overall Rhode Island economy, are headed in the right direction.

Indeed, 67.5 percent of survey respondents say the state’s economy will improve in 2016, representing a 0.9 percentage point increase compared with the winter survey in 2014. (PBN’s last winter survey was taken in December 2014. The newest winter survey was taken in January 2016).

At the same time, 81.8 percent of respondents expressed a positive outlook on their own businesses in 2016, which is a 7.1 percentage point increase compared with the same survey last winter.

“The second half of last year was the strongest second half we’ve had in a decade, and the momentum has definitely carried over into the new year,” said Stephen Rosa, president and CEO of the marketing firm (add)ventures Inc. “Usually things level off, but we definitely feel the economy strengthening and our bigger clients are feeling more confident.”

The growth seen at the Providence-based firm has created a need for more employees, and while (add)ventures is in the midst of hiring, Rosa said it’s sometimes a challenge to find “the right people with the right skills.”

About half of survey respondents said a shortage of qualified workers was one of the greatest challenges to operating a business in Rhode Island.

“We have a lot of people [in Rhode Island], but we have to make sure they have the right skills,” he said. “As the economy strengthens, there’s a need to close that skills gap.”

If the talent pool doesn’t grow in Rhode Island, however, Rosa says he’d consider growing personnel in (add)ventures’ other locations, namely in New York or Miami.

And (add)ventures isn’t alone in its quest to hire new employees, as a record-breaking 44.2 percent of respondents said overall employment was higher than the previous quarter, representing a 7.2 percentage point increase compared with winter 2014.

Rhode Island’s jobless rate was 5.1 percent in December, down from 6.8 percent in December 2014, according to the R.I. Department of Labor and Training. For the year, the state added 14,898 jobs, representing 2.9 percent growth compared with 2014. But the labor force grew at a slower rate of 1.1 percent, or 6,078 people, totaling 554,862 people in December.

East Providence-based Starkweather & Shepley Insurance Brokerage Inc. is another Rhode Island business looking to augment its ranks. Company President and CEO Natale Calamis says the firm grew its workforce through acquisitions and new hires, now totaling about 210 employees.

“We’re still hiring, we’re still looking for more people and we don’t see that stopping,” Calamis said.

Forty-eight percent of respondents said they planned to hire in the first quarter of 2016, which is a 0.1 percentage point drop compared with last winter’s survey.

Looking beyond his company, however, Calamis says the keys to sustained economic progress are in construction and development, along with a strengthening housing market. He also believes 2016 elections, including the race for president of the United States, could have sweeping effects on the overall economy, depending on who comes out on top.

Locally, Calamis says the state’s political leaders are taking a pro-business approach.

“Everybody at the [Statehouse] wants to become more pro-business, which is a pro for us and the whole economy,” Calamis said. “If [they] can get out there and help the businesses, that will help us all in the long term.”

IN STEP WITH BUSINESS

Indeed, the state’s top leaders and their policies on paper are becoming progressively more in step with those of the business leaders. In the past year, the state introduced a slew of new economic incentives for new and old business alike, aimed at growing jobs and innovation.

Raimondo’s most recent budget proposal for fiscal 2017 includes more initiatives aimed at creating jobs, which has been lauded by Laurie White, president of the Greater Providence Chamber of Commerce.

White thus far has supported the second-year governor and her initiatives.

“The governor’s budget proposal addressed many of the issues the Chamber has identified as critical to the state’s long-term economic prosperity,” White said in a statement. “These proposals send a clear message that the state understands the needs of businesses and is ready to act to meet those needs.”

Jay Allbaugh, region manager and senior vice president at Cox Communications, agrees with White and said the state is “absolutely committed to improving the business climate and stimulating the economy.” The company employs 800 people locally.

“As a provider of business telecom services, we want the same thing as our elected officials: to retain our local businesses and to entice new business to move here,” Allbaugh said. “Steps taken to encourage that net gain are of high interest to us. The better the economic climate for them, the better it is for Cox.”

But the optimism isn’t felt everywhere.

Reducing the cost of doing business in Rhode Island (72.4 percent), along with some of the red tape associated with doing business in the Ocean State (60.5 percent), were both identified as the two most important actions the state could take to support business in 2016.

David Ellison, owner of the handmade-furniture company The Lorimer Workshop LLC, in Providence, employs about a dozen people. His sales have grown between 25 percent and 40 percent each year since he started the company nearly a decade ago. Originally from Scotland, Ellison has lived in Rhode Island since 1981. What little interaction he’s had with the state has been challenging.

“A year ago, I called up and was told the only way I would get the information I needed [about workers’ compensation] was to come to a two-day seminar,” Ellison said with a laugh. “I’m a small-business owner and two days is a significant amount of time for me just trying to understand how the rates were calculated.”

In the end, Ellison went to a national payroll company, which looked up the information for him.

And while he says his workshop isn’t greatly affected by the ups or downs of Rhode Island’s economy, Ellison does worry the state’s economy is too closely tied to the whims of the national economy. It’s an opinion echoed in recent years by University of Rhode Island economists and the Federal Reserve Bank of Boston.

“It’s also painful to see some of the political discourse that goes on in Rhode Island,” Ellison said. “The local politics are very [much about] who you know, how you know them and what you know.”

More than half of survey respondents said business activity was better than the previous quarter, which represents a 13 percentage point drop compared with the previous winter. The number of businesses looking to make large capital expenditures has also decreased. Twenty-three percent said they plan to purchase a big-ticket item in the next quarter, representing an 11.2 percentage point drop compared with the winter of 2014.

Peter Andruszkiewicz, president and CEO of Blue Cross & Blue Shield of Rhode Island, is encouraged by positive signs in the state’s economy and signs of alignment among its business leaders.

“As a state, we need to continue to build momentum – particularly in terms of our workforce development, attracting and retaining business that will provide good jobs and building a STEM-based, entrepreneurial ecosystem,” said Andruszkiewicz, who is retiring in May from Blue Cross but is the current chairman of the Greater Providence Chamber of Commerce. “I see a new kind of public-private partnership emerging in the state based off of a bold vision, aligned interests and common goals. There is an increasing sense among all the stakeholders that we are all working for the same bright future.”

And although there’s a present sense of hopefulness among businesses, the sentiment could change quickly.

“We’ve been talking about high-paying jobs for years now and politicians are grabbing onto any hope,” Mazze said. “Even though we’re a state of small business, a lot of our businesspeople are smart. They know how to read between the lines,” and at the end of the day, optimism is not enough to move the state forward. •

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