Rhode Island businesspeople can be an insecure bunch.
Even when the economy appears to be humming along, many have difficulty shaking a nagging feeling that things will eventually sputter, backfire and stall.
Who can blame them? History has shown that Rhode Island follows a first-in-last-out pattern during nationwide economic downturns. Throw in ping-ponging markets, a simmering global trade war and unprecedented unpredictability in Washington and that’s enough to get the pendulum swinging squarely toward pessimism.
But, while the cracks in confidence are indeed beginning to form, Providence Business News’ Summer 2019 Business Survey shows that local companies remain optimistic about their own prospects in the near future despite some signs of a bumpy road ahead.
Exactly half of the owners and executives who responded to PBN’s inquiries in recent weeks planned to hire more people in the next quarter. And another one-fourth of respondents – 28.2% – indicated that adding new workers was still under consideration.
While those numbers are down from last summer, when 60.7% of respondents forecast they’d be hiring in the next quarter and 30.4% said hiring was under consideration, the percentages are far higher than they were in the early days of the Great Recession in winter 2008, when only 21.1% said “yes” to hiring in the following quarter and 22.9% said it was under consideration.
Also, nearly two-thirds of responding companies this summer expected their results in the next 12 months to be better than the previous year – a level of confidence almost identical to what was seen in last summer’s survey.
“Businesspeople tend to be worriers,” said Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island. “But there is no question that there’s a general optimism on where they are now, and where they’re going in the short term.”
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SOME THINGS DON’T SEEM TO CHANGE
While there is no question that action on a number of fronts by state and local governments has made an impression with the business community, there is a nagging sameness to some of the issues that need to be resolved.[/caption]
At the same time, the rose-colored view of some Rhode Island businesses contains a hint of darkness, too.
Maybe with good reason. U.S. factory activity unexpectedly contracted in August for the first time in three years, according to the Institute for Supply Management’s purchasing managers index. On top of that, U.S. consumer sentiment fell in August to its lowest level since October 2016, according to a University of Michigan measurement.
When asked to look beyond their own companies to the Rhode Island economy as a whole, respondents weren’t exactly brimming with confidence.
Only 39.5% predicted either a slight or significant improvement in the state’s economy over the next 12 months, the least optimistic response to this question in PBN’s biannual survey since summer 2012, when 38.3% of the respondents felt the same way.
By comparison, in last summer’s survey, 64.3% thought Rhode Island’s economy would show slight or significant improvement. For last winter’s survey, confidence fell to 57.2%.
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TREADING LIGHTLY: Donald R. Nokes, left, president of information-technology services company NetCenergy, meets with his business partner Daniel Charland at the company’s Warwick offices. Most of NetCenergy’s clients are professional-services firms, and Nokes said there’s a feeling among them that they “don’t want to jump too far into an investment” right now.
/ PBN PHOTO/RUPERT WHITELEY[/caption]
Donald R. Nokes, president of NetCenergy LLC, a Warwick information-technology services company, sees this crisis of confidence among some of his clients, which are mostly professional-services firms.
“They’re doing well, but it’s a short-term well,” Nokes said. “There’s a feeling of, ‘I don’t want to jump too far into an investment because I’m not sure how long this is going to last.’ ”
EXPANSION CONTINUES
The PBN survey, which has been conducted twice a year since 2008, is not scientific. PBN sent 20 questions to 3,194 businesses statewide in the newspaper’s database. One hundred twenty-four returned the surveys, a mix of businesses ranging from manufacturers to banks, construction contractors to lawyers, retailers to real estate agencies. While the respondents included some of the state’s largest employers, most were small and midsize companies.
The survey results indicate that, so far, 2019 has been kind to most Rhode Island businesses as the economy continues its decadelong expansion.
Nearly two out of every three respondents, 62.7%, say their business activity in the third quarter of this year has been better than the previous quarter. And more than half, 52.4%, say they are now handling a greater number of new orders and business compared with the second quarter.
“Businesspeople believe that the economy is performing well,” Mazze said.
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EXPANDING PRODUCTION: ParsonsKellogg owner Thomas P. Kellogg III, right, with workers, from left, Pam LaMontagne, machine operator; Jen Ganos, decoration manager; and Claudia Herrera, machine operator. The East Providence company prints and embroiders company logos on products for promotional purposes. The company recently doubled the size of its production facility when it purchased a building next to its headquarters.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
It’s a belief shared by businessman Thomas P. Kellogg III. The president of promotional-products provider ParsonsKellogg LLC in East Providence said he’s added 30 jobs in the last 12 months, boosting his payroll to 90 employees.
In the same period, ParsonsKellogg has acquired another business and purchased a building next to his company’s headquarters, doubling the size of the production facility.
The result: ParsonsKellogg’s revenue has grown from $37 million to about $50 million over two years.
For Susan Fabrizio, president of Flagship Staffing Services in Cranston, the economic engine is chugging along so well that it’s actually making her job difficult.
Lately, Flagship has been fielding a flood of requests from companies looking for workers in professional services such as accounting and insurance for “temporary to permanent” positions.
During the recession a decade ago, Fabrizio had pools of out-of-work people with few jobs in which to place them. Now, with Rhode Island’s unemployment rate at 3.5% as of July, those pools have dried up while unfilled jobs are much more plentiful.
“It’s a challenge to find the talent,” Fabrizio said. “If I could fulfill the open orders we have, it would be great.”
But, while the business climate has been downright balmy for some, the survey indicates that many businesses believe there is plenty of room for improvement.
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IMPROVEMENT, PESSIMISM AT SAME TIME
The decadelong expansion has many Rhode Island companies reporting strong business through the summer of 2019, but a smaller percentage than in previous surveys are optimistic for the state’s prospects going forward.[/caption]
Among the responses – particularly in the comment section of the questionnaire – there was a clear sense that many small businesses feel they’re being neglected by state government as they continue to grapple with the cost of doing business here, even in the best of times.
“It would be beneficial to all if government were to embrace business and treat small- [and] midsize-business owners like they are valued, instead of like a nuisance,” wrote one respondent.
Mazze said that’s one of his takeaways from the summer 2019 survey: Rhode Island leaders may need to find a better balance between retaining and growing existing companies and trying to woo new, bigger employers.
“We spend a lot of time and money trying to attract new business,” Mazze said. “But we don’t put the same amount trying to grow local business.”
Chris Sheehy, owner of Sidewalk Branding Co. in East Providence, said his small search-engine-optimization firm is experiencing growing revenue, but he’s frustrated by the lack of support from the state for companies such as his. Now he’s contemplating a move across the border.
“I feel the business climate in Massachusetts is more respectful than it is in Rhode Island,” he said. “At least for microbusinesses.”
When asked about important actions state government could take to support business in the year ahead, executives placed reducing the cost of doing business in Rhode Island highest on the to-do list, with 69.2% of those surveyed marking that as important, down slightly from 70.9% a year ago.
One notable change in responses to that question was that 55.8% of those surveyed said reducing red tape associated with doing business in Rhode Island was crucial. While that ranked second, it was a decline from 61.8% a year ago and 90.2% in December 2018.
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SOME ISSUES BETTER, BUT SOME PROBLEMS WON’T DISAPPEAR
While many businesses see their future prospects through rose-colored glasses, their vision on some issues remains less positive. For one thing, the shortage of qualified workers remains a significant problem. Two other challenges are showing resurgence: taxes and health care costs.[/caption]
John C. Gregory, outgoing CEO and president of the Northern Rhode Island Chamber of Commerce, said efforts to streamline the state’s recent interactions with businesses haven’t gone unnoticed among his members.
“I think we’ve made a lot of progress, particularly cleaning up the molasses points,” said Gregory, who is retiring later this month. “The problem is the other states are not standing still and waiting for us to catch up.”
Anthony Baro believes Rhode Island is on the right track, but he’s hit a bit of a snag in trying to jump aboard.
Baro is managing partner of two small businesses involved in the solar energy industry, E2SOL LLC based in Providence and PowerDocks LLC, with offices in Newport and a research and development facility at the University of Massachusetts Dartmouth’s Center for Innovation and Entrepreneurship in Fall River.
“Innovation is on fire in Rhode Island,” Baro said. “The state is making all the right investments” that will “allow it to excel into the future.”
To feed off that excitement, Baro investigated moving his businesses into the new Wexford Science & Technology building, called Point225, on the edge of Providence’s Jewelry District and downtown. But the rent is too high for him and the parking situation difficult. And then Baro would face a traffic-choked commute to and from his home in Bristol.
“I can’t justify the move,” he said.
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HAT SPECIALIST: Scott Brown, a hat specialist at promotional-products provider ParsonsKellogg in East Providence, works on an order. The company prints and embroiders company logos on products for promotional purposes.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
LINGERING CHALLENGES
Even in the best of times, Rhode Island has its share of challenges.
In the latest PBN survey, health care costs ranked as the biggest business challenge among respondents at 61.5% (up from 52.7% a year ago), followed by a shortage of qualified workers (56.6%, down from 61.8% last summer) and taxes (50.0%, up from 41.8% last year).
Results from the survey also indicate that a strong economy can create headwinds of its own.
Nearly one-quarter of respondents, 24.8%, said the salaries of new hires have been their biggest growing expense over the last five years, an indicator of a tight job market.
And while health insurance topped the list of the biggest growing expenses at 50.4%, an increasing number of businesses are feeling the effects of rising rental and building costs (10.6% said it has increased the most over five years, up from just 2.9% last winter).
That’s no surprise to Mike Giuttari, president of MG Commercial Real Estate in Providence.
He said a building boom in the Boston area is driving construction costs through the roof in Rhode Island, as lucrative projects are drawing skilled workers up Interstate 95. “Everything is getting sucked up that way,” Giuttari said. “If people want [a new commercial or industrial building], they’re going to bid it on Boston rates.”
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UNCERTAINTY CURTAILS INVESTMENT
The caution that informs businesses’ actions has placed downward pressure on their desire to grow their workforce, with levels similar to this summer’s last seen in the winter of 2016. At the same time, the desire to invest in capital equipment fell back after a year of optimism.[/caption]
In one case, he said, a Lincoln company recently was looking to expand by building a 40,000-square-foot warehouse next to its existing facility. Five years ago, the construction costs would have been $80 to $90 a square foot. Company executives were shocked when the bid priced out at $175 a square foot.
Now the company is looking to lease an existing warehouse in the Interstate 495 area of Massachusetts after finding nothing suitable in Rhode Island.
“Construction costs are just too high right now,” Giuttari said. “Combined with low lease rates, you can’t justify construction.”
For the Rhode Island market to improve, “Boston needs to slow way down,” he added.
For the first time, the PBN business survey contained two questions about international business dealings.
Those surveyed were asked if their business buys or sells goods and services internationally – 66.1% said no, 30.4% said yes, and 3.5% said the matter was under review.
Respondents were also asked if their company expected to increase or decrease international business dealings in the next year. While 62.2% said it was under review, 31.1% said an increase was expected, and 6.7% said a decrease.
These questions are particularly noteworthy as President Donald Trump’s administration’s trade war with China and its dealings with other countries are rippling across the globe.
FarSounder Inc. in Warwick is one of those companies feeling those ripples.
The company, which produces and installs 3D forward-looking sonar systems in ships across the globe and employs more than a dozen people, is “doing well” right now, said CEO Cheryl Zimmerman. She declined to give financial figures because FarSounder is privately held.
Most notably, FarSounder’s sonar systems are slated to be fitted on the RRS Sir David Attenborough, a research vessel to be operated by the British Antarctic Survey, and the Alucia2, a vessel being built by OceanX, a private ocean-exploration organization.
But now when she takes business trips overseas, where most of FarSounder’s sales take place, she ends up fielding uncomfortable questions from prospects about the diplomatic tone out of Washington.
“It’s very stressful because of the political situation,” she said.
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AUTOMATIC PRESS: Screen printers Jeff LeBlanc and Amber Medeiros print Citizens Bank shirts on the automatic press at ParsonsKellogg in East Providence. The company prints and embroiders company logos on products for promotional purposes.
/ PBN PHOTO/MICHAEL SALERNO[/caption]
At ParsonsKellogg, Thomas Kellogg said his company – which stamps, prints and embroiders logos and brand names on everything from golf balls to hats and shirts – has been forced to adjust to the shifting global landscape.
While much of the company’s work is done in East Providence, Kellogg said about 10% of the promotional products are made “offshore” in countries such as China and Vietnam.
Because of increasing tariffs, “We’ve had to put asterisks by our quotes, reserving the right to review them,” Kellogg said. “We have sort of a nonguarantee in place because of the tariffs.”
So far, it hasn’t affected sales. Many of ParsonsKellogg’s clients are large companies and the budget for the promotional materials is a small fraction of their expenses.
“Generally, our customers have been able to absorb the tariffs because it’s not a big part of their business,” Kellogg said.
Still, even with his business running on all cylinders, he can’t help but feel a little uneasy.
Kellogg can recall that in the midst of the U.S. economic meltdown in 2008, ParsonsKellogg lost its largest customer, General Motors. And it doesn’t help that he’s now hearing a refrain among his acquaintances in the business community: “It’s been a 10-year expansion. We’re due for a correction.”
If and when a downturn does come, Kellogg believes the lessons learned in the Great Recession will serve him and others well.
“Business owners are wiser now,” he said.
William Hamilton is special projects editor at PBN. Contact him at Hamilton@PBN.com.
