Already cautious businesses grow even more wary about hiring

By Joyce M. Rosenberg
AP Business Writer

NEW YORK (AP) — Corri Smith is planning to hire a full-time project manager for her public relations firm and make her part-time assistant full-time. But she has a wary eye on the economy.

“It’s been a long time since we’ve had some trouble in the economy. It can’t all be wonderful — something will happen,” says Smith, owner of Charlotte, North Carolina-based Black Wednesday.

Smith, who believes an economic downturn is likely in the next 12 to 18 months, says. “I will be extra cautious with hiring alongside also making plans to stockpile and save revenue.” She’s aware that marketing is one of the first budget items to be slashed when corporate executives are anxious about profits.

Small business owners, who have taken a conservative approach to hiring during the economic expansion, are becoming even more careful amid concerns that the economy is weakening. They’re well aware that economists believe the country’s gross domestic product slowed considerably in the second quarter — forecasts give the GDP an annual rate of about 2%, down from 3.1% in the first quarter. Owners’ concerns and caution are increased by the Trump administration’s trade wars.

Some owners are cutting jobs, likely by not filling their open positions as well as by laying off workers. A report from payroll processor ADP released Wednesday showed that its business customers with up to 49 employees cut 23,000 jobs in June on top of a 38,000 reduction in May; this is the first time ADP has reported job cuts since September 2017. So far this year, small businesses have added about 25,000 jobs on average each month, compared with an average 52,000 last year and 56,000 in 2017. Their hiring pace has lagged behind that of larger companies, which have fed the hiring boom in the country the past few years.

Although the Great Recession ended 10 years ago, small business hiring never recovered to the levels before the downturn began in 2007. Owners who had laid off workers didn’t want to go through that devastating process again, and new entrepreneurs learned from the unhappy experiences of others.

Hiring is an ongoing balancing act for Scott Fish and business partner Sonja Skvarla, co-owners of Off Road, a business consulting firm based in Portland, Oregon.

“Businesses are charging ahead, but there is a small element of uncertainty in the economy, and we are noticing that it continues to be on the minds of business owners,” says Fish.

So although Fish and Skvarla are considering as many as five new staffers over the next year, they’re also treading carefully, hoping that their hiring is in sync with the work clients have for them.

“It’s a chicken-before-the-egg thing — do you have enough clients to support the cost of hiring someone great, or do you hire some great people and hope the revenue comes in,” Fish says.

Ethan Segal’s decision to hire freelancers for his internet marketing firm was based partly on the economy. After the Federal Reserve raised interest rates in December, some of his largest clients put their projects on hold.

“All of them decided to table not just my work but other companies’ as well. It was shocking and sudden,” Segal says. There are currently about 10 freelancers working at Philadelphia-based Segal & Co.

Many small businesses also struggle to find qualified workers. While that can be a problem for companies of all sizes, small businesses generally can’t offer the salaries and benefits that big corporations do, and with an economy that’s looking iffy, the smaller player are at an even greater disadvantage.

Because of competition for staffers from giants like Google, Facebook and Netflix, not only does software maker Gunner Technology not expect to hire in the next year, “we are looking at how we can get by without replacing employees we are sure to lose,” CEO Cody Swann says.

Swann’s solution is to automate some of the work that software developers generally do at his Las Vegas-based company; for example, reviewing software coding to detect errors.

The tariffs that the Trump administration has placed on thousands of products imported from China and retaliatory duties placed on U.S. goods are affecting many small businesses, even if they’re not importers or exporters. Software manufacture Joe Wilson might have to put off hiring freelancers if he feels the ripple effects of tariffs that his customers must pay.

“These issues impact the economy and people’s confidence in the economy. It’s easy for a business to defer spending money on a software project for a couple of quarters if they are worried about these things impacting their sector,” says Wilson, owner of Volare Systems, based in Highlands Ranch, Colorado.

Wilson uses freelancers because his work often involves customers’ projects rather than their ongoing needs. He has three now, and hopes to hire two to five more in the next six months to a year — as long as the economy and/or tariff issues don’t slow his business.

Even what looks like robust hiring can be conservative. At GreenDropShip.com, a company that provides distribution services for small online retailers, Managing Director Allen Kaplun is considering hiring as many as 20 people over the next six months, adding on to his current staff of 70. But Kaplun says he’s not going on a hiring spree because “we’re certainly concerned about the economy.”

GreenDropShip.com’s revenue is growing by 50% a year, while the staff additions Kaplun plans for the Denton, Texas, company amount to about 30%.

“Based on our business model, that’s pretty cautious behavior,” he says.

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A quick how-to guide for businesses preparing for a downturn

By Joyce M. Rosenberg
AP Business Writer

NEW YORK (AP) — Forecasts of slower economic growth during the second half of the year have many small business owners turning more cautious. While economists’ predictions aren’t dire, owners who remember the lessons of the Great Recession are nonetheless becoming even more careful about increasing their risks than they have been in recent years.

Here are steps owners take when they’re uneasy about the economy.

— Hire cautiously. Many owners have been cautious about hiring ever since the recession, not wanting to hire staffers they might have to lay off if revenue falls off during a downturn. In a Wells Fargo survey taken during the second quarter, 26% of owners questioned said they plan to add jobs over the next 12 months, down from 29 percent in the first quarter. A U.S. Chamber of Commerce/MetLife survey also taken during the second quarter showed that fewer retailers planned to hire over the next year — 21% versus 36% during the first quarter.

— Scale back capital investments. The Wells Fargo survey found that the number of business owners planning to increase their spending on equipment and other big-ticket items and investments fell by 2 percentage points to 33%. While that’s not a dramatic change, it does point to owners taking fewer risks.

— Lower expenses. Although the government doesn’t track companies’ spending on items such as rent, utilities, supplies, meals and other everyday expenses, owners do look for ways to save money when they fear revenue will fall. Purchases are prioritized with many non-essential items put on the back burner.

— Manage inventory. Businesses have been paring back their stocks of raw materials and supplies. In a monthly survey of manufacturing executives by the trade group Institute for Supply Management, an index measuring companies’ inventories fell 1.8 points to 49.1 in June from 50.9 in May.
 

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