Big Concerns for Small Manufacturers

August 7, 2007

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The state of the economy, taxes and the cost of materials ranked as the three leading concerns of small manufacturers in 2007's second quarter, according to last month's Small Business Research Board study.

The latest Small Business Research Board (SBRB) study, released last month, reports that the three leading concerns of small manufacturing business owners in the United States are the general state of the economy, taxes and the cost of materials.

More than 130 small business owners nationwide participated in the quarterly manufacturing industry poll, co-sponsored by International Profit Associates (IPA).

Even though the SBRB recently reported that its Manufacturing Industry Small Business Confidence Index (SBCI) rose 3.3 points to 40.3 during Q2 2007, there is great concern about the state of the economy — now and into the future. Only 36 percent believe the economy will improve during the coming 12 months versus 40 percent the first quarter.

Concern about energy and fuel costs, as well as finding quality employees, ranked ahead of health-care expenses as more problematic issues among manufacturing companies in the SBRB study.

The survey also measured small business owners and managers' interest in expanding their operations over the next 12 to 24 months. According to the findings:

Of the 29 percent who said they intend to expand during this period, 28 percent said they are considering expanding at current locations, while 21 percent said they will add more products and 20 percent indicated they intend to increase customer service. Adding more services ranked fourth with 16 percent.

Moreover, the small business owners said adding more automation or technology — as well as improving existing automation — would be their primary means of enhancing productivity over the coming 12 to 24 months. Additional methods cited as important for improving productivity: improved staff training, hiring more employees and offering incentive programs.

Interestingly, health-care costs — which had been the single most significant issue during the first quarter of 2007 — fell to sixth this time 'round. I guess Sicko had no effect on those polled...

Or are they thinking it'd be nice to get the health-care cost monkey off our backs?

Well, according to a recent survey from Chicago-based small-biz payroll firm SurePayroll, more small-business owners provided health-care plans for employees this year than last year. The SurePayroll survey found 69 percent of small businesses offer health care to employees, compared with 58 percent in 2006, while businesses that currently offer plans all said they will continue offering plans next year.

The top two reasons cited for providing health care were: 1) to attract good employees and 2) because "it's the right thing to do."

Of those who don't offer plans, more than half said it was too expensive.

Are small-biz concerns over the economy warranted?

Economic activity continued to expand in June and early July, according to the Federal Reserve's latest "Beige Book" survey. Bloomberg News notes that "the report backs Chairman Ben S. Bernanke's prediction of 'moderate' growth this year followed by a pickup in 2008."

As the Fed tries to steer the economy through "a meltdown in sub-prime mortgage lending" while inflation remains too high for comfort (Bloomberg's words), the Beige Book said manufacturing continued to expand in a majority of Fed districts.

However, almost every region said that oil and gasoline prices were either rising, high or "an issue," Bloomberg notes. "Contacts generally reported ongoing input cost pressures, particularly for petroleum-related inputs, while prices at the retail level continued to increase at a modest pace." That certainly justifies small biz concern about energy and fuel costs.

Despite this lackluster economic situation, low unemployment and wage gains are supporting expansion. In fact, "unemployment is near a six-year low," reports the Fed.

"While the consumer side is a little weaker, there's real strength in the manufacturing side," industrial manufacturer Eaton Corp. CEO Alexander Cutler said in a July 16 interview. "The lower value of the dollar means it's a great time to export from the U.S.," Bloomberg notes Cutler as having said.

Yet with high prices for raw materials and uncertainty of how to find low-cost energy, not to mention high-quality labor, it seems we're still steering in the dark. Managing a business has always been about controlling risk, but when you can't control much, it can feel like a roller-coaster ride without being at the amusement park.


General Economy, Taxes, Cost of Material Now Greatest Concerns of Manufacturers, According to Latest SBRB Study International Profit Associates, July 11, 2007

Small Business Confidence Indexes Rise In Three Key US Industries Small Business Research Board and International Profit Associates, June 18, 2007

Fed's Beige Book Says Expansion Is Hampered by Increasing Costs by Craig Torres and Anthony Massucci Bloomberg News, July 25, 2007

U.S. Economy: Second-Quarter Growth Exceeds Forecast (Update2) by Shobhandra Chandra Bloomberg News, July 27, 2007

Most Small Business Owners Say Healthcare Will Influence Vote in 2008 Election SurepPyroll, July 24, 2007

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