After taking a beating, small businesses on rebound
Small businesses, important engines of growth for both the state and national economies, are expanding and hiring again after taking a beating in the last recession.
From a bread maker in Andover to an auto parts maker in New Bedford, small businesses are reporting growing demand, increasing sales, and an improving outlook.
In South Boston, Rob Karpp still remembers the dark days of 2008 when business dwindled to almost nothing and he had to lay off dozens of workers from his drywall company. Now, a burst of construction across the region is creating so much new work for the second-generation family that Karpp doesn’t mind the long hours he’s putting in.
“It’s almost like they flicked a switch somewhere,” said Karpp, who expects to hire more workers this spring. “All of a sudden, it’s hard to keep up with demand.”
As the economy continues to improve, economists say, the participation of small businesses in the recovery will play a key role in lowering the unemployment rate.
Small businesses, defined as those with fewer than 500 workers, employ about half of private-sector workers in both Massachusetts and the nation, and generated about 65 percent of all new jobs across the country over the last 17 years, according to the Small Business Administration.
After setting records for pessimism in recent years, small business optimism in February increased for the third straight month, according to the National Federation of Independent Business, a small business advocacy group based in Washington.
Hiring has followed.
Small businesses have added nearly 1.3 million jobs nationally over the past year, and in the last six months, they have hired nearly twice as many workers as in the previous six months, according to the forecasting firm Moody’s Analytics and the national payroll company Automatic Data Processing Inc., known as ADP.
Robert A. Baker, president of the Smaller Business Association of New England, an advocacy group in Waltham, said the business climate has turned a corner for small firms, and many companies are experiencing significant increases in sales from a year ago. “It’s across the board,” Baker said.
To be sure, small businesses are still recovering from the effects of the recession. But several factors are contributing to their improving condition — particularly the recovery of the housing market.
Many small firms are involved in businesses tied to housing, including remodeling, home repairs, and landscaping. And home sales both nationally and in Massachusetts have reached their highest levels in years.
Nigel Gault, chief US economist at IHS Global Insight, a Lexington forecasting firm, noted that small business optimism was at a similar level in the beginning of both 2011 and 2012, only to plummet.
“Why is this year any different?” Gault asked. “Because the housing market has turned a corner.”
Auto sales are also on the rise, helping small firms like Precix Inc. in New Bedford. The company, which once made oxygen masks for World War II pilots, now makes synthetic rubber seals used by car companies.
Chief executive Dave Slutz said sales are up 10 percent over last year and have doubled since the 2009, when he had to lay off more than 100 workers and enact furloughs and pay cuts. He said he plans this year to add about 25 new jobs to his staff of 342.
“There’s a lot of pent up demand out there for cars,” he said. “We’re very optimistic.”
Mark Vitner, senior economist at Wells Fargo bank, one of the largest small business lenders in the United States, said there are other reasons for small businesses to be optimistic, including the resolution of some spending and tax issues in Washington, where partisan gridlock created uncertainty about the direction of the economy.
“As the confusion moves[s] into the rear view mirror, small business confidence will edge higher, mainly because the economy is doing better,” he said. “And that’s because sales are improving.”
Credit conditions are also improving, making it easier for small businesses to find the financing to expand and hire. During the recession and its aftermath, credit dried up for many small firms as banks tightened lending standards to avoid losses in a weak economy. But banks are beginning to ease those standards, according to the Federal Reserve’s quarterly survey of US banking officers.
Meanwhile, loan activity through the Small Business Administration, which guarantees loans to small businesses, is slightly higher than a year ago. Year to date, the agency has backed 712 loans in Massachusetts totaling $173 million through area banks, compared with 704 loans a year earlier, totaling $149 million.
Eastern Bank, one of the top small business lenders in the state, said loan demand has picked up sharply in recent months. Joseph Bator, director of Eastern’s business banking division, said the bank has offered 157 loans through the SBA in the first two months of 2013, compared with 141 a year ago.
“Most [small businesses] don’t think the economy is super-strong,” Bator said, “but they’ve reached a point where they don’t think it will get worse.”
Barry Wood, owner of Kitchen Sales Inc. in West Bridgewater, was able recently to take advantage of low interest rates, borrowing $750,000 in December to buy the property where his store is located. Sales are on the rise, Wood said, as contractors return to his showroom floor after a long absence and homeowners make postponed renovations.
Staffing has not rebounded to prerecession levels, and he continues to lock his Dumpster so it fills more slowly and needs to be emptied less often. It’s one cost-saving technique he deployed when the economy soured. But he sees progress.
“It’s been a roller coaster for a while,” he said. “We just don’t want to go back.”