Small businesses invest despite D.C. gridlock
Healthy economy, strong sales override lingering uncertainty
Small-business owners are tired of sitting on their hands while Washington dithers.
Despite lingering uncertainty over tax and health care policy, U.S. entrepreneurs are moving ahead with investment and expansion plans that could juice economic growth.
Thirty-two percent of small businesses are planning capital outlays in the next three to six months, the strongest reading since 2006, according to the National Federation of Independent Business’ August survey. And
27% say the next three months is a “good time to expand,” the largest share in 13 years.
A September survey of economists by the National Association for Business Economics, out Monday, predicts that business investment overall — by small and larger companies — will grow
4.4% this year, up from their 3% median estimate in December. Businesses that expand, buy new equipment or build new struc- tures typically hire workers to operate the machines or occupy buildings, and the factories that make the products generally need to staff up as well.
Many small firms need to replace worn-out computers, factory machines and power tools and no longer can wait for President Trump and Congress to agree on business tax reform that may provide them extra cash and more generous write-offs, says economist Diane Swonk, who heads DS Economics. “You’re finally getting to that point in the business cycle,” she says.
But William Dunkelberg, NFIB’s chief economist, says the firms’ plans are mostly driven by stronger sales and a healthier economy. “Cash flows are better,” he says. “They need more capacity, more ability to produce.”
Stonefield Engineering & Design of Rutherford, N.J., which handles apartment and other commercial real estate projects, has recorded 15% to 20% increases in revenue both in 2016 and this year, CEO Chuck Olivo says. So a year ago, the company bought a second office building in downtown Rutherford to accommodate the addition of about five employees, spending more than $500,000 on renovations, he says. Olivo plans a similar project in the area within months.
“I think there’s a positive mo- mentum with the economy based on the clients we have that are working on projects,” Olivo says.
It’s still uncertain whether businesses’ tax rates will be cut to the 15% Trump has proposed from as high as 40% or if a compromise will be reached. It’s also unclear if firms will be able to write off an entire capital purchase in a year vs. the current five-year schedule and if the current health care reform law will be modified. The legislation requires businesses with at least 50 employees to provide health coverage to those who work at least
30 hours a week.
Small businesses “don’t have a very good idea what’s going to happen,” Dunkelberg says. “What they do know for certain is that it’s going to be better than what they’ve had.”
And that’s enough to spur many into acting. Some companies are splurging on labor-saving equipment because they can’t find workers. With unemployment at a low 4.4%, nearly nine of
10 small businesses that were hiring last month said there were few or no qualified applicants, according to the NFIB survey.
The tight job market “will encourage companies to look into productivity-enhancing technology,” says Tom Porcelli, chief U.S. economist of RBC Capital Markets.
My Metal Business Card.com of Fullerton, Calif., has struggled to find representatives to stay in touch with customers during the ordering process. “I’ve had a problem getting quality résumés,” President Craig Martyn says.
So he’s making a six-figure purchase of software that automates the task and will supplement existing customer service representatives. Besides saving on labor costs, the tech ensures that customers will be contacted on time. Workers sometimes may miss a scheduled call or email.
The company is also spending $120,000 on three new lasers to make some metal and wood business cards in the U.S. Until recently, all production was outsourced to China. The U.S. operation allows for faster deliveries on rush orders and better quality control, Martyn says. He hired a worker to run the lasers.
He says he thought about holding off on the purchases until policy debates are resolved. But he adds that waiting means “you’re going to lose time and the opportunity for revenue … I don’t think there’s ever a perfect time to invest. You just need to do it.”