Recovery starts to set roots in R.I.

 / SOURCE: PBN WINTER 2014 BUSINESS SURVEY
/ SOURCE: PBN WINTER 2014 BUSINESS SURVEY

In 2013, Rhode Island businesspeople began to really believe in the recovery. A year earlier, with revenue rising and the Great Recession fading into memory, signs of optimism began emerging among local executives, at least about the prospects for their own enterprises.
But the poor performance of Rhode Island’s economy compared with the rest of the country, along with a stream of national and international fiscal crises, kept the positive outlook modest and limited to those improvements they could see firsthand.
Now, however, responses to the Providence Business News semiannual business survey show improving fortunes in many corners of the economy have convinced businesspeople that even Rhode Island is headed in the right direction.
Seventy-four percent of the businesses responding to the survey said they expect their business will be in better shape one year from now than it is today, the highest total in the survey’s 51/2-year history and a 5 percentage-point increase from last winter.
And perhaps more revealing, 66 percent of the 84 businesses responding in late 2013 said they expect the Rhode Island economy will improve either significantly or slightly in the year ahead, also a new high and 20 percentage points higher than last winter.
“We definitely see growth,” said Peter Crump, co-owner of Site Specific, a general contractor design-build firm in the Olneyville section of Providence. “We see more competition and tighter margins, but … people have been spending more in the last couple years.”
In the financial sector, BankNewport reported an “all-time high” in commercial lending in 2013, indicating that many businesses are looking to grow.
“We interpret this as an overall positive sign that Rhode Island’s economy is on a positive track,” said BankNewport Executive Vice President Leland R. Merrill Jr. in an email. “Our lenders are hearing from their customers in these industries that business is close to back on track with pre-recession levels.”
Based on the responses, the newly positive outlook is rooted in recent results at local companies.
The number of businesses reporting increased quarterly activity rose 11 percentage points, new quarterly orders increased 10 percentage points, and net annual income gained 6 percentage points on last winter.
Of those responses, only new quarterly orders fell (2 percentage points) from the 2013 midyear survey. “There is much more optimism out there, and I think some of it is state related and some is the result of national factors,” said Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island. “On the state level, there is much more attention from the legislature on economic development and job creation. That is a real positive, and the drop in the unemployment rate is critical. Even though it is still high, it is going down.”
While it may not show up in the survey, Mazze said it’s no secret that the business community has not been overly fond of Gov. Lincoln D. Chafee, and his decision this fall not to run for re-election may have brightened the mood of some executives.
More tangibly, rising consumer confidence among Rhode Island residents is convincing many businesses that strong sales are ahead, Mazze said, and on a national level the booming stock market is raising expectations.
Of course, this being Rhode Island, the optimism is hardly unqualified.
The number of businesses reporting higher employee head counts in the previous quarter dropped 1 percentage point from last winter and 6 percentage points from the summer survey.
“The state’s outlook is not really 20 percent higher – it is better than it was, but we are still going up a series of steps,” Mazze said. “We are not at the top. No one is throwing balloons in the sky.”
Alan Litwin, managing director of accounting firm Kahn, Litwin, Renza & Co. Ltd. in Providence, said among the clients he sees, those with customer bases outside Rhode Island are leading the way.
“Our clients who are relying on national business are seeing it pick up quickly, while those relying on just the local economy are much slower,” Litwin said.
What issues are still keeping local executives awake at night?
Litwin said employee health insurance and the consequences of the Affordable Care Act, plus personal tax increases going into effect this year that will hit many pass-through companies, are high on most people’s lists.
In the business survey’s annual sounding board of company challenges, health care costs and government fees and bureaucracy again took top spots, just below a weak economy, at the same 48 and 47 percent of respondents respectively as last winter. The challenges rising in executives’ minds were finding quality workers, which rose 8 percentage points to 36 percent, and energy costs, which rose 6 percentage points to 13 percent.
Robert C. Clement, CEO of The Allied Group, a marketing and fulfillment firm in Cranston, said even though the market has picked up, the pressure to keep prices low that started in the recession remains, discouraging major hiring or expansions.
“Everyone is extremely lean and mean and making sure all their vendors and partners are too,” Clement said. “The quest is to be an added-value company in a discount world.”
With that pressure on prices, Clement said Allied will probably keep its headcount roughly the same in 2014 and make modest investments in equipment and facilities.
Leading the way for builders are high-end residential projects, Site Specific’s Crump said, likely the result of the strong stock market giving upper-income, but not mega-rich, individuals the confidence to tackle luxury projects.
On the commercial end of the market, Crump said many businesses are getting estimates and quotes, which hopefully will turn into jobs in 2014. Site Specific is now designing a new Edgewood Yacht Club building to replace the historic Cranston structure destroyed by fire three years ago.
Like many Rhode Island businesses, Site Specific has expanded its reach to take advantage of opportunities in Massachusetts, where the economy and real estate market are much stronger.
Crump said he expects Site Specific to see 10 to 15 percent growth in 2014 and to add four or five new employees during the year.
While the Rhode Island economy is still well behind where it was before the recession – especially in terms of job growth – the new optimism in part reflects how bleak things were five years ago.
In the winter of 2008, only 18 percent of survey respondents said they had a positive outlook for the Rhode Island economy, 32 percent said their activity was improved from the previous quarter, and 12 percent were planning layoffs.
This winter, with a positive outlook for the local economy at 66 percent, only 1 percent of responding businesses expect to cut employees next quarter, down 6 percentage points from last winter, and 55 percent said they plan to increase their headcount, a 10 percentage-point increase from last winter. One area where there always seems to be demand for new workers is information technology and computer programming.
At Bridge Technical Talent in North Kingstown, 2013 was a year of strategic investments primed toward growth in 2014.
Bridge bought Becker Professional Search of Providence, and consolidated from locations in Warwick and East Greenwich to an office with roughly twice as much space in the Lafayette Mill in North Kingstown.
To grow in the competitive technology talent market, Bridge utilizes an internship program that drafts college seniors for 15 to 20 hours per week with the chance for a full-time job when they graduate in May.
Devine said Bridge hired all five interns in 2013 and has brought in two already this January with plans for up to five more by the end of the month.
Merrill at BankNewport said the bulk of the bank’s 275 new commercial loans were in the southern half of the state, where the tourism and hospitality sector has kept things going.
“Occupancy and revenue rates are up for the past three or four years, and this is driving a lot of the positive economic trends in those parts of the state that have concentrations in hospitality,” Merrill wrote. “Locally, the first new Aquidneck Island hotel construction project in 10 years was completed in 2013, and there are other similar hotel projects in the planning stages.”
One of those hospitality businesses is Newport Vineyards in Middletown, which has been under renovation for much of the past year.
Co-owner John Nunes said the vineyard had a rebound year in 2012, with 2013 steady, but has high hopes once the renovations, which will expand production capacity, visitor and special event space, are done.
“The tourism market in Newport is doing OK,” Nunes said. “Wholesale did very well, and I am optimistic in that regard. The whole local food thing, the farmers market in the summer and supporting agriculture, is helping.”
Nunes said the Sakonnet River Bridge toll controversy is a bit of a concern, mostly if visitor memories of trips to Rhode Island are tainted by large bills after their stay.
“You still have to work to maintain your advantage and chase business, but we are spending a lot on the facility here to look at the next 10 years of growth,” Nunes said. “We make sure they have a good time and want them leaving with smiles and bottles of wine, not toll or parking tickets.” •

No posts to display