Rhode Island businesspeople have revived their optimism about the future of the state economy, but they appear reluctant to back up their improved outlook with actions, according to responses to Providence Business News’ Winter 2020 Business Survey.
Just over half of the business owners and executives who responded to the biannual survey – 55.9% – said they believe the Rhode Island economy would improve slightly or significantly in the next 12 months. That’s better than last summer, when just 39.5% felt the same way, the lowest rate since the summer of 2012.
This renewed sense of hope seemed to keep afloat the respondents’ positive outlook for their own businesses. Nearly two-thirds projected their business would be doing better a year from now, a rate that’s held steady for more than a year.
But when it comes to putting their money where their mouths are, business leaders are increasingly reluctant.
Only about 40% expect to hire more people in the next quarter, the lowest rate since the summer of 2012, when just 36.7% of business owners – with the Great Recession still fresh in their minds – planned to add to their payrolls. By comparison, a year ago, almost 60% of respondents said they expected to add jobs.
In addition, more businesses seemed dead-set against making any big-ticket purchases, with nearly half of respondents – 48.4% – saying “no” when asked this winter if they had plans for such expenditures in the next quarter. That percentage is significantly higher than the 34.8% a year ago, and the 29.8% from the summer 2019 survey.
Why the cold feet on investing in business growth?
The fear of an impending economic downturn and a tumultuous political environment – fueled by a presidential campaign that’s just heating up – is likely to blame, according to Edward M. Mazze, a University of Rhode Island distinguished professor of business administration who helped develop the PBN survey.
“The economy is good, but they’re getting a little more nervous that the good times are going to end,” Mazze said.
[caption id="attachment_318685" align="aligncenter" width="1024"]
Costly place to do business
Businesses continue to look for the same help from state government as
they always have, including reduced taxes, more incentives and less red tape,
though only one need below is rising. Eight in 10 respondents identified reducing
the cost of doing business, the highest response since 2014.[/caption]
[caption id="attachment_318683" align="aligncenter" width="1024"]
Tax concerns grow but positive signs on other issues
While concern about taxes is at its highest level in years, other perennial business
challenges such as a shortage of qualified workers, government fees and bureaucracy,
and health care costs appear to have eased slightly this winter.[/caption]
POLITICAL IMPACT
The PBN survey, which has been conducted since 2008, is not scientific. PBN sent 18 questions to 4,055 businesses statewide in the newspaper’s database. Ninety-four returned the surveys, representing a span of industries from banking and manufacturing to hospitality and health services. A few employ upward of 1,000 people, but most are small and midsize companies.
Big or small, local businesses can be affected by what’s playing out at the national level, including in the White House. But whether President Donald Trump has helped or hurt local business depends on whom you ask.
“Having a businessman in the White House has opened up the floodgates for businesses to start investing again,” said Steve Holmes, managing partner for Barlow, Joseph & Holmes Ltd., an intellectual-property law firm in Providence. The firm, which works primarily with manufacturing companies looking to patent their technologies, has reaped the indirect benefits of a rise in national manufacturing in recent years.
While manufacturing activity took a hit this fall amid trade tensions, Holmes said his company and its clients were relatively unaffected.
David Sardinha sees it another way.
Uncertainty over the permanence of a recently brokered trade deal with China still looms large for Sardinha, owner of audiovisual services company Pineapple Studios Inc., in Portsmouth.
“When there’s a trade war, we all end up feeling the pinch,” Sardinha said.
While tariffs haven’t cost Pineapple Studios directly, it’s his business clients he’s worried about. When unexpected expenses such as increased trade tariffs crop up and economic conditions deteriorate, companies may see video production as a nonessential expenditure, Sardinha said.
[caption id="attachment_318792" align="alignright" width="233"]
Nancy Parker Wilson, owner of Greenvale Vineyard in Portsmouth, with her son Bill Wilson, the operations manager. / PBN PHOTO/TRACY JENKINS[/caption]
It’s a similar worry at tourism-reliant Greenvale Vineyards Ltd. in Portsmouth, where a national or global crisis can cut foot traffic in Greenvale’s wine-tasting room. “People just sort of want to hunker down,” owner Nancy Parker Wilson said of troubled times.
As of now, that’s not a problem. The 77-acre farm and vineyard has seen steady growth in its seasonal tasting and events business, a function of increasing interest in agritourism and the “eat local” movement, she said. But like many survey respondents, Parker Wilson remains on the fence about expansion or new hires in 2020.
In other cases, businesses have already taken the leap in 2019 and now want to pause future growth plans.
Take Coutu Bros. Movers. The Warwick-based company acquired one of its competitors, MGM Express Movers, in November, adding trucks and six more employees to its company.
While owner Bob Romano still hopes to grow in 2020, he wasn’t sold on expanding the company footprint in any way, at least for several quarters. “I think a lot of people, including myself, are waiting to see how politics play out,” Romano said.
Mazze agreed with that logic.
“Why invest in the future if the future may have a cloud over it?” he said.
Right now, the clouds just over the horizon include the presidential election, a precarious trade deal with China and the possibility of an economic downturn, which, if history holds true, will hit Rhode Island harder than other states.
“Rhode Island history has been one of being first in, last out,” Mazze said. “That’s always in their minds; that controls expenditures and hiring.”
FEELING FRUSTRATED
While respondents are cautiously optimistic about their business and economic futures, 2019 was not exactly a banner year.
In the winter 2020 survey, just under 60% said their net income improved compared with the prior year. That percentage has been on the decline in the last two surveys and is now at the lowest level since the summer of 2013, when 54.4% reported improved income. At the same time, less than half of the respondents described their current business activity as better than the previous quarter, only slightly higher than the results a year ago.
[caption id="attachment_318678" align="aligncenter" width="1024"]
VENTING: James Tice, owner of exhaust-parts store Pipe Dreams, in Warwick, said he’s “unbelievably frustrated” by governmental red tape. The most recent PBN business survey indicates he’s not the only one. / PBN PHOTO/RUPERT WHITELEY[/caption]
James Tice, owner of Pipe Dreams LLC in Warwick, was among those experiencing increasingly worsening sales and business activity. He blamed the struggles his wholesale converter and exhaust parts store has faced on the state, saying increasing taxes and regulation of small business have created “a terrible mess.”
“I am unbelievably frustrated. If I could do anything else but have a business in this state, I would do it,” Tice said. “I don’t see any good outlook until the state administration changes.”
The survey results indicate that he’s not the only one who’s fed up.
Asked how the state government can support their businesses in the next year, four out of five respondents named reducing the cost of doing business in the state – the second-highest level since 2012, when more than three out of four said the same thing.
Mazze noted that CNBC named Rhode Island the worst state for doing business in 2019, the fifth time Rhode Island has received that distinction in 13 years. It’s not necessarily that the state business environment has gotten significantly worse this year, he said, but more that respondents are frustrated over what they see as lack of response to their complaints.
“Shame on the state of Rhode Island, where for years the respondents to this survey have raised the issue of government regulation and the cost of doing business,” Mazze said. “Businesspeople are constantly asking for help and no help is coming.”
Donald R. Nokes, president of Cranston-based information technology company NetCenergy LLC, noted that if a business faces increasing costs, it looks for ways to streamline and optimize its processes. When the state government has faced rising costs, however, it has raised taxes and fees on businesses, Nokes said.
“If the state was a business, it would lose customers,” he said, adding that government leaders should look to cut old and excessive programs from its budget.
The level of red tape also inhibits business success, said Holmes.
“I spend as much time doing [regulation-related] paperwork as I do legal paperwork,” he said.
Also high on the list of businesspeople’s complaints is the ever-rising cost of health care – a top challenge among 53.3% of those surveyed. A similar percentage of respondents named health care as the fastest-rising cost in the last five years.
Concern over health care costs likely reflects not just the dollar amount now but the fear of future increases, Mazze said. The result in some cases are plans with such high deductibles that employees find little to no benefit from coverage, he said.
[caption id="attachment_318680" align="aligncenter" width="1024"]
TALENT CHALLENGE: Cliff Grimm, foreground left, managing director at EpiVax in Providence, observes research associate Mitchell McAllister working in the biotechnology firm’s main lab. Grimm says it’s been difficult to find talent because Rhode Island lacks a strong biotechnology industry. / PBN PHOTO/MICHAEL SALERNO[/caption]
Cliff Grimm, managing director of Providence-based biotechnology company EpiVax Inc., said the unsustainable increases in health insurance costs for employers has forced the company to change some of its offerings, though not necessarily through higher deductibles.
EpiVax now covers less of the premium on the higher-end “Cadillac” plan and has added options for health reimbursement arrangements and flexible spending accounts, which force employees to share more of the risk.
“We’ve really had to get more creative with our offerings,” Grimm said.
[caption id="attachment_318682" align="aligncenter" width="1024"]
Optimism grows on strong profits
Business continues to be good for many Rhode Island companies this winter.
Optimism on the economy is also rebounding in part on strong profits,
though previous results are getting harder to match.[/caption]
HIRE ASPIRATIONS
While Rhode Island may not be the most business-friendly state from a cost and regulation perspective, there are upsides. Chief among them is the proximity to customers, which nearly three-quarters of respondents listed as the greatest benefit to doing business in the state.
The second-biggest benefit? The quality of the labor force, which was cited by 36.5% of respondents. While by no means a majority, this marked the highest rate in the history of PBN’s survey. At the same time, the percentage of respondents listing a shortage of qualified workers as one of the greatest challenges to operating a business in Rhode Island dropped from 54.3% a year ago to 45.6% in the most recent survey, the lowest level since 2016.
While record-low unemployment rates – both national and state level – have generally made it harder for employers to find qualified workers, Mazze noted that the low rates do not reflect the significant number of underemployed workers with jobs that do not realize their full potential. The benefit of that for businesses is that they have more qualified candidates to choose from, Mazze said.
But that experience is largely industry-dependent.
Sardinha said he’s never had trouble hiring workers for his audiovisual company, praising the state for its vibrant arts community and pool of new workers coming from renowned institutions such as the Rhode Island School of Design.
Parker Wilson similarly has found it fairly easy to expand staff in preparation for the busier summer and fall seasons, though she credited this more to loyal employees who return for seasonal work each year.
[caption id="attachment_318684" align="aligncenter" width="1024"]
Expansion plans on hold
Employers are growing more cautious on expansion plans, with fewer expecting to hire in the
next quarter than at any time since 2012. Most are also holding back on major investments.[/caption]
For EpiVax, finding talent has been much more trying, which Grimm blamed on the lack of a strong biotechnology industry in Rhode Island.
“Rhode Island’s not exactly a hotbed for immunology professionals,” he said.
While the company has hired the most employees in its history over the last two years, it has had to look outside the state and even the region to find qualified candidates. The most recent hire, for example, was recruited from California.
Grimm hoped the state government would increase job-development and workforce-training programs for existing employees.
He also was hopeful that the promotion of the I-195 Redevelopment District as an innovation hub for biotechnology companies, among other industries, might deepen the pool of prospective candidates for EpiVax.
[caption id="attachment_318686" align="aligncenter" width="1024"]
Confidence waning
Rhode Island business owners tend to be confident in their own operations, but the percentage expecting to see improvements this year is down significantly from just a few years ago.[/caption]
Despite concerns, few respondents predicted negative outcomes for their businesses in the upcoming year and quarter.
In fact, the survey results indicate that many who were feeling negative about the future in mid-2019 have a somewhat brighter outlook now.
In the summer 2019 survey, 24.2% of respondents said Rhode Island’s economy would worsen slightly or significantly in the next 12 months. That percentage declined to 17.2% in the winter 2020 survey.
The drop in negative predictions compared with mid-2019 makes sense given persistently encouraging economic benchmarks such as low employment and low interest rates, according to Mazze.
Uncertainty about how that will change in 2020 remains, Mazze acknowledged. But right now, “We’re not in a war, we’re not in a recession, and the election hasn’t happened,” he said.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
