For most, progress too slow to see

Rhode Island’s economic recovery is now moving at a pace too slow for many local business leaders to perceive it.
By most measures, the state, like the country, is in a better position than it was three years ago or last summer. But considering the depths Rhode Island is rising from, that’s not saying much. And the further businesses are removed from the crash of 2008, the weaker and more disappointing that progress seems.
Even in Ocean State companies that are growing – and in previously moribund markets showing signs of life – like real estate – a larger pessimism about the state clouds its future.
That pessimism has itself become a subject of frustration, blamed by community leaders and industry stakeholders for a self-defeating feedback loop preventing the local economy from gaining momentum.
And it is evident in the responses from company executives and owners in Providence Business News’ 2012 summer survey, which showed that the stirrings of optimism evident at the start of the year were gone by August. The survey was sent to 1,601 businesses.
Asked for their outlook on the Rhode Island economy a year from now, only 38.3 percent of the 175 businesspeople who responded said they expected any improvement compared with 47.9 percent last winter and more than half in the winter of 2010.
An unexpectedly poor spring and early summer appear to have contributed to the glum mood, as just 50.3 percent of businesses said their current activity had increased from the previous quarter, down 4 percentage points from the winter and 5 percentage points from last summer.
“This summer was difficult, a more severe slowdown than in the past, although we are busy right now,” said Paul Carroll, president of American Printing in East Providence. “Most of my business is coming from out of state … Massachusetts is far superior to Rhode Island.”
Perhaps as a result of the slow summer, 62 percent of respondents said they expected their business to be in a better position a year from now than this year, a decline of 3.3 percentage points from the winter survey.
“I can definitely feel deep caution and frustration and am eagerly waiting for things to change,” said April Williams, president of North Star Marketing Inc. in North Kingstown, which works primarily in the business-to-business market. “Businesses are cautiously optimistic, but across the board, everyone is looking at budgets. Sadly, the more optimistic companies are outside Rhode Island.”
Timing could go some way to explaining the sense of anxiety.
The 2012 election season has brought no shortage of American-decline narratives, mudslinging and anxiety about the direction of the country. In Rhode Island, the survey went out in mid-July while anger over the 38 Studios LLC bankruptcy was still raw and overshadowed the state’s economic-development efforts, which were mostly suspended for the rest of the summer.
By contrast last winter, while unemployment remained bad, the state had recently completed a groundbreaking state pension overhaul that was particularly popular with business leaders.
In many ways, the responses by businesspeople in the summer survey reflect a frustrated sense of stasis and déjà vu. The looming budget battle in Washington, euro-zone panic, immovable unemployment numbers and bankruptcy (with 38 Studios standing in for Central Falls) made it seem like we have been here before.
The survey responses reflected that.
Asked to compare their net income this year with last year, 48.8 percent of respondents said it had improved – flat from the winter survey – but 35.5 percent said it was the same, a 7.8 percentage-point increase that meant, at least, fewer had lost money. The share who said income had stayed the same increased 8.5 percentage points from the summer 2011 survey.
Those reporting quarterly business activity staying the same this summer rose 3.5 percentage points from the winter and 6.5 percentage points from last summer.
The 30.1 percent who predicted their business a year from now would end up this year the same as last year was a 3.7 percentage-point increase from the winter and 0.8 percentage-point rise from last summer.
“I think people look at the Rhode Island economy as still stuck in neutral,” said Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island. “And because it is stuck in neutral, they do not plan to do three major things: hire new employees, purchase big items and expand their facilities.”
Indeed, of the various parts of the survey, responses on future investment and hiring might be the most disappointing.
Just 36.7 percent of the businesspeople who responded to the survey said their company plans to hire new employees in the next quarter, a 6.3 percentage-point decline from January and 0.5 percentage-point decline from last summer.
Asked whether their company intends to purchase any “big-ticket items” in the next quarter, only 18.2 percent said yes, down 11 percentage points from the winter survey and 1.9 percentage points from last summer.
And 10.8 percent said their company had plans to expand their facilities in the next quarter, the same share as in the winter survey and down 1.9 percentage points from last summer.
Even more concerning, 3.6 percent of respondents said their companies planned to close facilities in the next quarter, up 2.9 percent from last winter and 2.8 percent from last summer. Twenty-point-eight percent of respondents said their companies were either planning or considering layoffs in the next quarter, a disconcerting 9.1 percentage point increase from the winter, although better than last summer when more than one-quarter of businesses responding said they were considering cuts.
“A lot of organizations are operating under the mindset that leaner is better than having a lot of stuff,” Mazze said. “They are trying to do more with less and that is why we are having the unemployment problems we are having. Being stuck in neutral, we could really go either way from here based on events.”
In addition to companies operating efficiently since the recession, Mazze said the presidential election was likely causing a slowdown as businesses wait to see how things will shake out.
Cautiousness in hiring and capital investment is also tied more closely to consumer confidence than it used to be, Mazze said.
An example of a Rhode Island company that is looking to grow, closely watching the election, and has so far held off on hiring the new workers needed to pursue that growth is NetCenergy, a Warwick information technology services provider.
NetCenergy has 38 employees, has been growing by about 20 percent annually in recent years, and is looking to hire another three workers if the right people can be found.
Echoing complaints heard across the state, NetCenergy President Donald Nokes said finding qualified candidates has been difficult and he is now trying to lure a Rhode Island native who lives in Washington, D.C., to return north.
Three-quarters of NetCenergy’s business is providing IT services to small and medium-sized businesses. Nokes said while demand for those services remains strong, sales of hardware and software have been noticeably down in the past four months.
“Services revenue is in great shape, but capital purchases are being put off,” Nokes said. “We don’t know why.”
Part of NetCenergy’s growth plans, Nokes said, is to expand the company’s reach further from Rhode Island and become more regional.
“We are 85 percent Rhode Island client-based, which is something I am not unconcerned about,” Nokes said. “I feel we should be more diversified in where we can get clients. There are states with less of an unemployment rate and we are starting to expand our geographic reach toward them.”
At Providence audio-visual event and production company ATR/Treehouse, President David J. LaPorte said his company’s revenue is up 8.5 percent this year. He has added one new employee, but keeping up with the increasing costs of living, benefits and taxes make it difficult to grow. LaPorte expects the Rhode Island economy to remain almost exactly where it is for the next 12 to 15 months. His recommendations for things the state can do to help include getting rid of tangible property tax, giving preference to local companies in state contracts and regionalize services.
While the weak local economy was most often cited as the greatest challenge to facing businesses, by 69 percent of respondents, that’s a 3.5 percentage point improvement from last summer.
Fewer respondents also cited taxes, 54.8 percent, and health care costs, 47.6 percent, than they had last summer, then 60.6 percent and 55.6 percent respectively.
On the other hand, there was a 2.9 percentage point year-over-year increase in respondents who cited a diminishing customer base (33.9 percent) and 5.8 percentage point increase in those who cited a shortage of qualified workers (30.4 percent.)
As they did last summer, survey respondents ranked the top six things state government could do to help in the same order: reduce the cost of doing business, cutting red tape, providing tax incentives, ending the corporate income tax, supporting workforce development and improving transportation infrastructure
As always, some companies have a rosier outlook than others.
Provdotnet LLC in Providence is taking advantage of the ever-rising demand for electronic data storage and, like many IT companies, growing quickly and steadily serving startups in the cloud-computing realm.
“I do get a sense that Rhode Island is doing a reasonably good job attracting small, entrepreneurial, startup business, which is helping our business grow,” said Ron Sacks, managing partner at Provdotnet, which has doubled its revenue in the past year and gone from one-and-a-half full-time employees to five, plus three contractors.
Sacks echoed many in the tech sector hoping for smaller electricity-rate increases in the coming year.
“Rhode Island has been more accommodating than expected,” Sacks said. “There are no major challenges other than trying to keep operating costs in line with the rest of country.”
Even at many of the companies sensing a slowdown in the first half of 2012, such as American Printing, there is growth. The company recently bought Blazing Sign Works of Leominster, Mass., and Carroll is looking to hire two or three more employees in the next year.
North Star Marketing recently moved into a larger space on Ten Rod Road in North Kingstown and has job openings.
“We are in hiring mode and cautiously optimistic – the companies that are left are the wise ones,” said Williams, the North Star president. •

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