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A Complicated Picture

John Regan says that, in many respects, it is difficult to reconcile the numbers from the latest Business Confidence Index (BCI) released by Associated Industries of Mass. (AIM) with recent headlines and the many strong headwinds facing business owners and managers today.

Indeed, the monthly confidence index continued an upward trend since the start of the year, rising to 58.1, a gain of 0.9 points, putting the index “comfortably within optimistic territory,” according to AIM, which Regan serves as president.

That optimism, though, comes as inflation remains at nearly historic levels, gas prices continue their upward climb, a stubborn workforce crisis continues, supply-chain issues persist, and the stock market is down double digits (almost 20%, in fact) from the start of the year. That’s why Regan acknowledges that the BCI’s trajectory seems illogical, if not contradictory to what’s happening.

“It’s hard to reconcile, but people feel confident,” he said. “And the Business Confidence Index is important because if you’re confident, you’re more willing to make investments in equipment, people, facilities, and new products.”

And a closer look at the landscape might reveal that there are, in fact, reasons for such optimism, he said, starting with a simple comparison to where things were two years ago — and even four months ago — with regard to the pandemic and its many side effects.

John Regan

John Regan

“Massachusetts is on track to end this fiscal year with more than $6 billion in the rainy day fund — it’s just incredible revenue performance.”

And then, there’s those soaring state revenues. The Department of Revenue took in more than $2 billion above what was expected in April, giving Gov. Charlie Baker cause to press his case for the Legislature to take up his proposals to provide roughly $700 million in tax relief to residents.

“Massachusetts is on track to end this fiscal year with more than $6 billion in the rainy day fund — it’s just incredible revenue performance,” he said. “If you match business confidence with the state’s own revenue performance, clearly positive things are happening.”

Overall, there are several factors, competing numbers, and varying opinions relative to just what is causing this record inflation that make it difficult to speculate about what will happen short- and long-term and whether the country is heading for a recession, as many are now projecting. GDP declined by 1.4% in the first quarter, and many economists are projecting that this trend will continue in Q2. And the matter is complicated further by the Fed’s ongoing efforts to slow the pace of inflation by raising interest rates — an aggressive strategy that is fueling speculation about a recession.

As Bob Nakosteen, a semi-retired professor of Economics at the Isenberg School of Management at UMass Amherst surveys the scene, he said it is largely without precedent, thus making analysis, let alone predictions, difficult.

“We live in complicated times,” he said, with a large dose of understatement in his voice. “It’s a complicated picture, more complicated than I’ve ever seen it.”

Brian Canina, executive vice president, CFO and treasurer at Holyoke-based PeoplesBank, agreed.

“This is a very unusual period of time,” he told BusinessWest. “Because there are so many different things going on, between supply chain issues driving costs up, the cost of gas being driven up by government regulation … it’s really hard to pinpoint whether it’s true economic growth that’s driving inflation or if it’s purely government-driven. So it’s hard to say exactly what’s going on.”

And even harder to project what will happen. Nakosteen does not anticipate continued decline in GDP for the second quarter, which, if it did happen, would be the technical definition of recession. But he’s not projecting strong growth, either.

Brian Canina

Brian Canina

“This is a very unusual period of time. Because there are so many different things going on, between supply chain issues driving costs up, the cost of gas being driven up by government regulation … it’s really hard to pinpoint whether it’s true economic growth that’s driving inflation or if it’s purely government-driven. So it’s hard to say exactly what’s going on.”

“My prediction is we’ll see growth in the second quarter,” he said. “Not robust growth, maybe 1% or 1.5%, but I don’t think you’ll see GDP decline again.”

Meanwhile, Regan said economists with AIM are projecting that recession is “more likely than not, but it won’t be a terribly long recession.”

For this issue, BusinessWest talked with these experts and asked them to slice through the complex confluence of issues and try to anticipate what will happen with the economy in the coming months and quarters.

 

On-the-money Analysis

It was the late U.S. Sen. John McCain who, in 2015, described Russia as “a gas station masquerading as a country.” Paying homage to that quote, Nakosteen, echoing others, said Russia is a “a gas station with an army.”

That classification, and the acknowledgment that Russia, and Ukraine, both export large amounts of wheat and fertilizer, speaks volumes about just one of the many forces — most of them unpredictable in nature — that are impacting the national and global economic scene. And they’re also making it difficult to determine what will happen in Q2, Q3, and well beyond, said Nakosteen, who, like Regan, said that despite those aforementioned headwinds, there are many positive signs when it comes to the economy.

Bob Nakosteen

“The job market is strong, retail sales are good … so the economy is actually pretty strong, and the Fed thinks it’s too strong.”

“The GDP decline in both the state and the nation was almost more a technical issue, because all the numbers that went into it, except those regarding inventory, were strong,” he explained. “The job market is strong, retail sales are good … so the economy is actually pretty strong, and the Fed thinks it’s too strong.”

Which prompted two interest-rate hikes this year, including a half-point increase late last month, designed to slow the economy. But with those rate hikes comes talk of inflation, said Nakosteen, adding that, historically, one has led to the other.

These factors add up to a lot of watching and analyzing for people like Canina, who said there is a lot to digest, including current loan activity, or the lack thereof, as well as inflation and the dreaded inverted yield curve — a successful predictor of many recent recessions — and the impact of rising interest rates on consumer spending as the cost of borrowing increases.

Starting with a look at loan activity, he said it has slowed markedly in recent months, with most all refinancing of home mortgages complete and commercial loans in the post-PPP era being relatively stagnant.

“For what should be a very robust economic environment, we’re not seeing the equivalent loan opportunities on either the commercial or residential side,” he said, adding that the rising interest rates, coupled with low inventory and soaring prices, are certainly impacting the latter. “We’re not seeing a lot of loan demand; we’re doing what we can to find it, but it’s challenging for us right now.”

And this lack of loan activity will certainly have an impact on interest paid on deposits, he said, noting that while one might assume that these rates will rise naturally as the Fed increases interest rates, they won’t if loan activity remains stagnant.

“We’re coming off a time when banks have a ton of cash because of all the government stimulus that’s been flooded into the market,” he explained. “So they have a ton of cash on their balance sheet and not a lot of loan demand, so it’s going to be very difficult for them to pay higher rates on deposits unless they can turn that cash into loans.”

And the loan market is just one of the many things to watch moving forward, he went on, adding that the sluggishness in that area is a symptom (one of many) that the inflation being witnessed is a product of government policy and other factors — supply chain issues, workforce shortages and resulting higher wages among them — rather than the economy being hot and in need of being cooled down.

“I don’t think gas prices or the cost of groceries are really being impacted by consumer spending,” he said. “I think those things have been impacted by government regulation, supply chain, and cost of wages — grocery stores paying $17 an hour for kids to bag groceries because they can’t hire people at lower wages because there’s no one to hire.”

“It’s all been reactionary to the pandemic — everything right now seems to be incredibly artificial,” he went on, adding that, for this reason, the Fed’s interest-rate hikes might provide a real, unfiltered look at what’s happening with the economy. “We have artificially driven rates on the short term, and the Fed also manipulating rates on the long end with their bond purchases. If they can start shrinking their balance sheet, and raising interest rates on the low end can normalize the yield curve, and then get out of the markets, then we can see what’s really going on.”

Still another thing to watch is how quickly and profoundly interest rates are increased, he said, adding that, in the past, when rates rise quickly and in large doses, the Fed has had to back off and reverse course in an effort to pick up a slowing economy.

Nakosteen agreed, and noted that there are many factors that go into inflation, some of which are likely to be impacted by rising interest rates — such as the spending spawned by government-awarded money in the wake of the pandemic — and some not.

“It’s a complicated picture,” he said. “And inflation is more complicated than I’ve ever seen it.”

Looking back to see if there was a time to compare all this to, Nakosteen said there were many similar attempts to slow the economy, but perhaps none at a time when there were so many issues clouding the picture.

“It’s a bizarre mixture of factors,” he said. “There’s COVID, the war in Ukraine, the aftermath of all the stimulus … it’s a strange mix.”

And despite this mix of factors, or headwinds, business owners are generally upbeat, as indicated in the upward movement of the BCI, which Regan explained this way:

“When things are going badly, the BCI usually predicts that. Despite all the negative stock market activity and the presence of significant inflation pressures, along with continuing supply chain issues and the challenge of securing a workforce, the index is in significantly positive territory.

“When you look at the BCI and some of the other things that are happening, it’s hard to reconcile, other than to say that the people who are responding to the survey feel very confident about how they are doing and how they perceive conditions for their own operation,” he went on, adding that the next reporting of the BCI will be watched with great interest.

 

The Bottom Line

Looking again at the complicated picture that is the national economy, Nakosteen said that, historically, efforts by the Fed to slow inflation by raising interest rates usually take six months or more to reveal their true efficacy.

But in this case, such initiatives have been designed to speed that process, he said, adding that he’s not at all sure whether they actually succeed in doing that — or whether they will succeed at all, given the many question marks concerning the nature of this historic inflation.

Overall, the always complicated task of projecting what will happen with the economy has become that much more difficult. In other words, stay tuned.

 

George O’Brien can be reached at [email protected]

Workforce Development

More Than Clothes

Maria Pelletier found confidence — and a job — with the help of Dress for Success.

Applying for jobs can be a daunting task, especially if one does not have the right tools or preparation to nail the interview. Dress for Success, an international not-for-profit organization, is working toward helping low- to middle-income women achieve economic independence by boosting confidence and providing valuable skills, a network of support, and the right suit to get the job done — literally.

When Maria Pelletier lost her job in August 2017 — the first time she had ever been fired in her life — she felt like she hit rock bottom.

“It was the last thing I was expecting,” she said. “It really set me back and made me question who I am and what I’m able to do.”

Pelletier began collecting unemployment, and although she was applying for jobs, she wasn’t getting hired, and she couldn’t figure out why.

“I was just doubting myself,” she said. “I kept thinking, ‘why are they not hiring me? What is going on?’”

“We’re finding out where they want to work, how we can get them in the door, and what’s their path to move up the ladder and have career success, because ultimately, our goal is to help women gain economic independence.”

Fortunately, she stumbled upon a program called Dress for Success Western Massachusetts, which she says gave her the confidence she needed to get back on track. When asked about her journey through the program, Pelletier had three short words: “where to begin?”

The most important thing Dress for Success did for her was get her confidence back up. Pelletier applied and went through the Foot in the Door program, a course that helps women enter the workforce. She was able to get a job part-time at the Post Office while going to classes for the program.

Then, in April 2018, she got a full-time job as lead Client Service specialist at Baystate Medical Center, and has been working there ever since. In that role, she answers phone calls coming into the hospital, and hopes to continue to learn more about her department and grow into new responsibilities.

“The interview skills and the classes we were taught reinforced on my skills I already had,” she said. “It was just bringing it back out to the forefront and saying, ‘yes, you can do this.’”

Sense of Sisterhood

That, said Executive Director Margaret Tantillo, is exactly what Dress for Success is about — giving women the confidence they need to get into the workforce, whether it is their first time or they need a little help to get back out there.

While the name entails part of the organization’s mission, to supply women with clothing for a job interview — or a few days of outfits once a job is secured — from the Dress for Success boutique at the Eastfield Mall, this is only part of the mission. “The suit is the vehicle, or just one aspect of what we’re able to do,” Tantillo said.

She told BusinessWest there are two workforce-development programs, and a third on the way, designed to help women become financially independent and confident in themselves.

Foot in the Door, launched in 2016 to help underemployed and unemployed women enter the workforce, is a collaboration between Springfield Technical Community College and Holyoke Community College instructors, who provide training on the interpersonal skills that are necessary for any workplace.

Margaret Tantillo says Dress for Success offers women a community of support — a sisterhood of sorts.

Within three months of graduating from this program, 70% of women, on average, are either in school and/or working, Tantillo explained. Program directors also make sure to prioritize putting women in jobs that are the right fit for them.

“We really work with our participants to find out what their interest is and what their skillset is,” said Tantillo. “We’re finding out where they want to work, how we can get them in the door, and what’s their path to move up the ladder and have career success, because ultimately, our goal is to help women gain economic independence.”

Having a good relationship with employers and referring agencies in the region is a big part of this, and Tantillo said practice interviews are available for women who finish the program successfully so they can receive feedback before going into the real interview. Some even get jobs right from the practice round.

On a more personal level, Dress for Success offers the Margaret Fitzgerald one-on-one mentorship program for women who are looking for jobs or recently entered the workforce. Each participant is paired with a professional woman in the community to work with on an individual basis.

“They are able to form a relationship so they can guide and support women in terms of whatever their unique, individual need is,” said Tantillo, adding that the program recently received an anonymous donation of $25,000. “The women who have come through that have had some really good results.”

She added that having a role model is a big part of women finding success in the programs, as many of them have not been fortunate enough to have role models in their lives.

The name of the program comes from a female mentor herself. Margaret Fitzgerald was a secretary and the only woman in the Physics department at Mount Holyoke College in the 1970s. She was called “mom” by many of the women enrolled in that program and acted as a mentor, advocate, and friend to the students. The female leaders in this program hope to do the same thing for their participants.

The newest program, The Professional Women’s Group, is set to launch in January 2020 with help from Eversource. It will focus on promoting employment retention and career advancement by providing valuable information, tools, and resources while creating a safe environment for participants to network with other professionals.

“They have a real sense of responsibility because what they do doesn’t just impact them, it impacts the next person we refer to that employer. It’s interesting to see how people respond when they feel like they’re part of something bigger.”

This group of women will be recruited from other programs and aims to help them especially in the first six months of a job, which are critical in terms of how people perform.

“The unemployment rate is lower, so there are more people in jobs that need the instruction and guidance about how to retain a job,” Tantillo said.

This new program, she explained, is intended to supplement the ones already in place at Dress for Success, and is framed around five pillars: workplace etiquette, work/life balance, financial health, health and wellness, and leadership and civic responsibility.

“We provide them with a community of support,” she noted. “We’ve had women talk about how they feel like this is a sisterhood and that they’ve never felt so supported before in their lives.”

Opening New Doors

Confidence. Community. Sisterhood.

These key words mentioned above several times are what Dress for Success instills in women utilizing its programs. And these women want to succeed not only for themselves, but for each other.

“The flip side is, now, when they’re in a job, they have a real sense of responsibility because what they do doesn’t just impact them, it impacts the next person we refer to that employer,” Tantillo said. “It’s interesting to see how people respond when they feel like they’re part of something bigger.”

For Pelletier, she gained not only a community of support, but a second chance.

“I was at rock bottom, and I said, ‘OK, let me try this. Let me see where it goes from there,’” she said. “They can either kick me to the curb or they can say, ‘hey, come on in.’ And luckily, they said, ‘come on in.’”

Kayla Ebner can be reached at [email protected]

Construction

A Surge of Confidence

By Kathleen Prause and J.D. Harrison

Results from the USG Corp. and U.S. Chamber of Commerce Commercial Construction Index from the second quarter of 2019 indicate that more than half of contractors are highly confident that the market will provide sufficient new business opportunities in the next 12 months.

Overall, the Q2 composite score of 74 — up two points from 72 in the first quarter — shows a vibrant commercial construction sector, although contractors’ revenue expectations slightly decreased.

“The construction industry is a reflection of our country’s broader economic health, so contractor optimism is a great sign for everyone,” said Chris Griffin, president and CEO of USG Corp. “Even so, it is important that we think about solutions to our big challenges, like building a healthy pipeline of new workers and incorporating technology to make our job sites safer and more efficient.”

More than half of contractors (52%) are highly confident about the ability of the market to provide new business opportunities in the next 12 months, an 11% increase over last quarter’s findings. The backlog ratio — comparing contractors’ average current backlog of projects to the ideal amount of work companies would like to take on — reached 82, the highest since the Index launched in 2017. Hiring expectations also recovered between Q1 and Q2 2019, with most contractors (60%) anticipating employing more people in the next six months.

Furthermore, 60% of contractors report confidence that revenue will remain stable. They also expect access to capital to continue, with 66% believing access to financing will get easier or remain the same over the next six months.

In a notable shift from the last three quarters, the number of contractors who report “high concern” about the availability of skilled labor declined to 46% (down from 54% in the first quarter. While confidence in having access to skilled labor shows some improvement, 85% of contractors still express high concerns about the cost of that skilled labor.

For the third time since the launch of the Index in 2017, this quarter’s survey explored sustainability practices in construction. The findings show that the average share of green projects for contractors is declining. This finding is interesting, since other industry studies reveal no slowdown in the number of green construction projects. One explanation may be that the majority of green work is becoming more concentrated among a smaller group of specialized companies. The study shows that green projects are done more frequently by large contractors.

The Index also reports a mismatch between green standards and green incentives, with most contractors (84%) saying they must meet green standards on at least some projects, but fewer than half (47%) take advantage of green incentives. Finally, general contractors report that the most important green attributes swaying their purchasing decisions are energy efficiency (80%), materials without harmful chemicals (65%), and water efficiency (64%).

The Index comprises three leading indicators to gauge confidence in the commercial construction industry, generating a composite index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis. The second-quarter results from the three key drivers were:

• Backlog: contractors’ ratio of actual to ideal backlog rose five points (to 82 from 77), hitting its highest point since the Index launched in 2017;

• New business confidence: the level of overall confidence rose three points (to 74 from 71), suggesting a return of optimism about the market’s ability to provide new business opportunities in the next 12 months; and

• Revenue: the revenue score dropped one point (to 66 from 67), although most contractors (60%) expect revenue to remain the same.

Kathleen Prause is director of Corporate Communications for USG Corp., a manufacturer of building products and innovative solutions. J.D. Harrison is executive director for Communications & Strategy at the U.S. Chamber of Commerce.

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