Money can’t buy everything, including talented workers.
At least that’s what Rhode Island companies are learning as business activity rebounds, but finding people to fill new jobs is growing more difficult, according to responses to Providence Business News’ 2022 Winter Business Survey.
Nearly three-quarters of business owners and executives who responded to the biannual survey say they’re suffering from worker shortages: the highest rate in the 14-year history of the survey. And many are offering higher wages and better perks but are still struggling to attract qualified workers.
That’s far from their only problem. Rising inflation and snarled supply chains continue to take their toll, with nearly 9 in 10 respondents indicating that they’re paying more for materials and supplies than the previous quarter – the same record-high rate as last summer’s PBN survey.
Still, against that backdrop, profits are somehow swelling for many, and so is the feeling of confidence. A little more than half of those surveyed say their net income this year was better than last year – that’s twice as many as who responded that way in the 2021 Winter Business Survey. And about 6 in 10 are expecting that upswing to continue in the year ahead.
Why are their spirits buoyed?
It could be because whatever challenges businesses are facing now pale in comparison with the onslaught of health and economic devastation wrought by the COVID-19 pandemic, says Edward M. Mazze, a University of Rhode Island distinguished professor of business administration who helped develop the PBN survey.
Those able to survive the last two years of the public health crisis aren’t nearly as vulnerable to going under because of a few unfilled positions or rising supply costs, Mazze says.
“Five years ago, you might have had 50 bakeries, and now you have five,” he said. “The chances of those five surviving are much greater.”
Just as they adapted to restrictions on crowd sizes and masking, so too will business owners find ways to cope with labor market shortages and increased expenses. That adaption will likely involve a combination of outsourcing work to consultants, replacing people with technology or upping the salaries of those still employed to keep them loyal, Mazze says.
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Profit boost:
Profits are strongly up from a year ago, though expectations for a better state economy over the next 12 months have dipped slightly from last summer and the previous winter. Nearly half of respondents say business activity has improved from the previous quarter, which is in line with recent seasonal winter responses but down sharply from last summer’s 65%.[/caption]
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Where are the workers?
Three-quarters of survey respondents cite a shortage of qualified workers as the greatest challenge to operating their business in the state, the highest level of concern for this issue since PBN began conducting the survey in 2008. Conversely, only 3 in 10 respondents cited the perennial challenge of taxes, the lowest such response in the survey’s history.[/caption]
‘HUGE PROBLEM’
The PBN survey, which has been conducted twice a year since 2008, is not scientific. PBN sent 22 questions to 1,151 businesses in the newspaper’s database, including two questions specific to the pandemic. Ninety-eight returned the surveys, representing various industries, from banking and manufacturing to hospitality and health services. A few employ more than 1,000 people, but most are small and midsize companies.
While respondents have a rosy outlook about their own businesses, a growing number of them are gloomy about the state’s economy. Just under half said they expected the local economy to be “slightly” or “significantly” better in the next year, down about 10 percentage points from the two most recent surveys.
One reason for that may be the approaching elections, which includes hotly contested congressional and gubernatorial races, putting politics in the spotlight for business owners, along with uncertainty about who will be setting economic policy beyond 2022, Mazze says.
Politics is certainly front and center for Daniel Dwight, CEO and president of Pawtucket membrane manufacturer Cooley Inc.
With campaign season just gaining momentum, Dwight isn’t ready to throw his support behind a particular candidate for governor yet. But he knows he won’t be supporting Gov. Daniel J. McKee.
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OVERCOMING OBSTACLES: Daniel Dwight, right, CEO and president of Pawtucket membrane manufacturer Cooley Group, goes over the company’s oil boom containment technology with Larry Akinlapa, fabric inspector. The company has seen record growth despite being hamstrung by labor shortages and supply chain bottlenecks. / PBN PHOTO/MICHAEL SALERNO[/caption]
Dwight faults McKee for a “lack of vision and leadership” since taking over a year ago from former Gov. Gina M. Raimondo, including what he viewed as a failure to invest in workforce development and training needed to ease the labor crisis brought by the pandemic.
The interest in workforce development appears to have increased among other respondents, too. Nearly half of companies surveyed wanted the state to support programs to develop skilled workers, the second-highest response for workforce development in the survey’s history.
Dwight says having a properly trained 300-person workforce is crucial to the company’s survival, noting that “top of the pile” salaries and perks such as referral bonuses used to guarantee that Cooley could retain talented workers.
But Dwight is now finding that even financial incentives aren’t enough in a shallow talent pool.
Applicants for open positions are scarce, and most who apply are “nonstarters” – not qualified – Dwight says. Even worse, some new hires have failed to show up for the first day of work or have walked out in the middle of a shift without a word.
“It’s a concept that’s completely foreign to me,” Dwight said. “And that’s a huge problem because our production schedule is dependent upon people showing up.”
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Help wanted:
Interest in workforce-development programs is again perking up, as identified by nearly half of businesses. That’s the most since the summer of 2018. Among the perennial issues businesses look to government for help with, reducing the cost of doing business remains the runaway leader. At the other end of the spectrum, the fewer than 3 in 10 respondents who identified elimination of the corporate tax is the lowest since PBN began asking the question in 2012.[/caption]
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Holding steady:
The majority of businesses that expect to hire in the next quarter matches last summer and is significantly higher than a year ago, when pandemic-fueled uncertainly had owners more cautious about the near-term future. The one-quarter of businesses planning to purchase big-ticket items is holding steady from last summer as the highest percentage since the pandemic began.[/caption]
PRICE HIKES
Equally challenging for businesses is the rising cost of materials because of kinks in the supply chain and inflation at the highest rate in 40 years. It’s prompting business owners to try new strategies to make the numbers work.
In many cases, the strategy is simple: pass the costs to the customers.
Last winter, only 13.7% of businesses surveyed said they planned to raise prices in the next quarter. In this most recent survey, that number more than doubled to 30.5%.
Jeff Lipshires, president of J2 Construct Inc. in Middletown, has already bumped up what he charges clients for his high-end residential and commercial construction services. It’s not a decision he made quickly or easily, but he had to match the higher prices he’s paying for building materials.
“We try to move our budget around, but we just can’t absorb that,” Lipshires said.
Customers have been understanding, except for one homeowner who abruptly pulled the plug on a project after balking at J2 Construct’s rates.
In some ways, Lipshires can relate.
J2 Construct recently purchased the 3,000-square-foot Middletown Grange on East Main Road with plans to convert part of the historic building into J2’s headquarters. Now mounting costs are threatening to make a mess out of the company’s renovation budget.
“Because of our growth, we really have no choice, but it definitely is going to cost us more right now,” Lipshires lamented.
Price hikes aren’t deterring other companies, either. Just over a quarter of respondents surveyed are planning big-ticket buys, including equipment, in the next three months – the highest rate since the summer 2019 survey. Fewer, about 8%, were planning to expand facilities in the next quarter, though another 23% were open to the possibility, according to the survey.
J2 Construct could certainly afford the higher prices after several years of explosive growth. The company began in 2018 with three people working out of a single room. By the end of 2021, J2 had 60 workers and was named as one of PBN’s Fastest Growing Companies, with $25 million in revenue in 2020.
Still, Lipshires worried that the booming housing market crucial to his company’s success was a bubble on the brink of bursting, threatening a catastrophic collapse much like the one that touched off the Great Recession in 2008.
But PBN survey data shows that the economic upheaval caused by the COVID-19 pandemic has played out much differently. While it took years for business activity to rebound during the Great Recession, respondents to PBN’s most recent surveys indicate activity rebounded within months after the initial economic shutdown in the spring of 2020. Quarterly increases in business activity reached pre-pandemic levels by the summer of 2021, although they declined in the latest survey as often occurs due to seasonal business cycles.
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LOOKING UP: Paul Amaral, owner of Amaral Custom Fabrications Inc., a custom sculpture fabrication and restoration shop in East Providence, stands among several pieces he fabricated for various artists. Although he’s had difficulty filling positions at his shop, Amaral has plenty of interested clients and expects to grow his sales. / PBN PHOTO/RUPERT WHITELEY[/caption]
In a way, Paul Amaral has too much activity. Recently, he’s had to turn away some prospective clients in part because of his difficulty in filling positions at his custom sculpture fabrication and restoration shop in East Providence. In another case, Amaral Custom Fabrications Inc. lost out on a bid for a Boston carousel renovation project because it didn’t have enough employees to get the job done quickly.
“I told them it would take me six months, and somebody else said they’ll do it in four. So they got it,” Amaral said.
Despite losing that project, Amaral has plenty of high-end investors and big-name artists knocking at his door. It’s not the craze he experienced in 2008 when the economic meltdown made investors pull money out of the stock market and put it instead in art, but he still expects to grow his sales, both at home and abroad.
GOING REMOTE
Despite the economic disruptions caused by the pandemic – or maybe because of them – more respondents in the most recent PBN survey say they plan to increase international business dealings in the next year. And none is ruling out global trades entirely, versus the 17% who said an outright “no” to foreign markets a year ago.
Mazze pointed out that while “international” conjures up visions of far-away dealings, it could mean neighboring Canada or Mexico. And while the one-third of respondents who already buy or sell in the world market is by no means high, he expects that number to rise as the state’s reinvigorated manufacturing industry expands its reach.
Another trend Mazze expects to continue to grow is remote workers. More than half of companies surveyed say their staffs were required to work from home during the immediate aftermath of the pandemic, though it’s unclear how many plan on making that permanent.
One business that has made remote work permanent is Working Planet Marketing Group Inc. The Providence-based search engine marketing firm was an early adopter, announcing a complete shift to remote work in July 2020, according to Soren Ryherd, co-founder and president.
Despite its tech-centric business model, the nearly 20-year-old company never let its employees work anywhere other than its Wayland Square office before the pandemic. State shutdown orders forced Working Planet to assess whether sending people back to the office would ever make sense. Probably not, the company decided.
Employees had the freedom to fit their work hours around parenting and caregiving obligations, while eliminating commuting time. And even with this flexibility, the business didn’t suffer, Ryherd says.
It hasn’t been perfect.
Ryherd’s co-founder, who is also his wife, pulled an all-nighter on March 12, 2020, working with their IT team to shift their data and software tools to the cloud.
The company tried to replicate conversation around the water cooler with designated videoconferencing social time every morning, but it’s no replacement for face-to-face chit chat.
“There are tradeoffs you always make,” Ryherd said. “Individual and group discussions probably are always better in person. You’re trading that for forcing people to live in a specific place and commute time and lack of flexibility and expense.”
Even his own experience, switching from a shared office with his wife in their Wayland Avenue building for separate, at-home offices, took some time to get used to. He can’t go back, at least not exactly.
Working Planet sold its office building in the fall of 2021. Those profits, as well as money saved on overhead costs such as utilities, were put toward other things, such as a $300-per-month stipend for its employees.
The company also raised pay to remain competitive for talent in a tight labor market. And no longer tied to a central office, they can look beyond the state borders when recruiting. Working Planet’s 30 employees work in 12 states.
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Rosy view
: The pandemic rocked many segments of the Rhode Island economy, but it hasn’t dented the optimism most businesses have had since the Great Recession for their own operations over the coming year.[/caption]
EVOLVING SITUATION
The business challenges continue to evolve while the pandemic lingers on, according to the latest PBN survey.
For instance, health insurance remains at the top of the list of the biggest growing expenses, with 39.6% of respondents saying it had increased the most over five years. But at the same time, 33.3% now say the salaries of new hires have become their biggest growing expense (up from 27.4% a year ago), and many more businesses are feeling the effects of rising costs of raw materials (20.8%, up from 9.7% a year ago).
Likewise, health care costs and taxes still rank high among the greatest challenges facing businesses (checked by 45.8% and 35.4% of respondents, respectively) as they have been for years. However, the shortage of qualified workers has leapfrogged to the top of the challenges in the winter 2022 survey (74%, up from 43.2% a year ago).
Shop owner Hema Bulmer has no shortage of challenges right now. A tight labor market, shipping concerns, the pandemic – it’s almost been too much to handle.
The owner of Pow Science LLC, an independent toy store in South Kingstown, Bulmer has spent the last six months racked by anxiety over keeping the shelves stocked.
Many of the small toy manufacturers Bulmer relies on have been unable to secure shipping containers needed to deliver products. A shortage of containers has created fierce competition for available ones. It’s a battle most often won by big-box stores and online retail giants.
“We just can’t compete with that kind of buying power,” Bulmer said.
And while customers have begun to return to the store, located in the Wakefield Mall, the hands-on play area that youngsters enjoyed remains closed for now. The space has been sanitized and toys boxed away until Bulmer deems it’s safe.
Similarly, birthday parties, group classes and school events that helped promote Pow Science are mostly on hold. It was Bulmer’s favorite part of the business, but she realizes it doesn’t make sense to pack a school assembly hall full of 500 kids for a science show right now.
The hardest thing is the uncertainty. Right now, it’s often a mystery when toy shipments will arrive. And Bulmer fears that she won’t be able to find new employees if someone quits. She’s beginning to give up hope that some semblance of “normal” will ever return.
“I don’t want to change anything, but I might have to accept that I have to do some things a different way,” Bulmer said.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
