Keeping Your Balance: A look at the economic outlook for Rochester in 2015

Listen to this article

I recently attended the Rochester Business Journal’s roundtable presentation titled “2015 Economic Outlook: Rochester and the Upstate Region.” The presentation included statistics from a regional CEO survey and four local business leaders, each discussing his overall view of the national, regional and local economy. The group included the following:

• Dr. Donald Levy: Professor at Siena College and director of Siena Research Institute, presenting on the Upstate New York Business Leaders Study;

• Dan Burns: Senior vice president and president of the Rochester Division at M&T Bank, presenting on the banking industry;

• Brad McAreavy: President of the Rochester Automobiles Dealers Association, presenting on the automotive industry;

• Martin Mucci: President and CEO of Paychex Inc., presenting on the small business outlook; and

• Richard Plympton: CEO of Optimax Systems Inc., presenting on the optics and manufacturing industry.

Levy: 2014 most optimistic year of study

Levy kicked off the roundtable by sharing many of the key statistics from the Siena College Research Institute’s findings from its Upstate New York Business Leaders Study. CEOs from Buffalo, the Capital Region, Rochester and Syracuse participated in the study. Of the 524 CEOs interviewed as part of the study, 30 percent are from Buffalo, 28 percent are from the Capital Region and Rochester, and 14 percent are from Syracuse.

In its eighth year, the results from the current edition of the survey showed that 2014 was the most optimistic year of any during the survey (dating back to pre-recession days of 2007).

When discussing Rochester’s specific industry outlook, Levy commented that, “the key to [Rochester’s economic] success is that not all of the eggs are in one basket.” In looking at the specific industry respondents from the survey, the engineering/construction and service industries were the two most optimistic industries with all seven of the industries polled, having more optimistic views for the current and future economic landscape than pessimistic views. The other industries included manufacturing, wholesale and distribution, retail, financial, and food and beverage.

Underpinning all of the optimism, Levy shared a statistic that 66 percent of all CEO respondents in Rochester believe that the Affordable Care Act has a negative effect on their business. “CEOs remain confident in spite of, not because of, government,” said Levy.

Burns: ‘A Goldilocks Economy’ locally

From a lending perspective, Burns held the belief that the Rochester market was “a Goldilocks economy,” in that it was “not bad, not good … but just OK.” The takeaway from the banking industry outlook is that local banks have adequate capacity to provide loans to small businesses, but he rued the unwillingness on the side of the small business owner to take on the uncertainty of a business loan.

He likened a bank’s ability to grow to a simplified personal finance decision: Given $100, individuals have two basic options for investing, 1) keeping the money in cash and earning less than 1 percent in current market conditions, or 2) buying an S&P security and taking on market risk with the potential to earn much more than a 1 percent return.

During and after the Great Recession, banks noticed large inflows of deposits similar to option 1 above. Burns noted that banks made very little on deposits, especially in the current interest rate environment. However, the banks prefer to loan money to small businesses, which is similar to above option 2. “We’re dying to make loans,” said Burns.

McAreavy: Preserve the dealership relationship

McAreavy summed up the local automobile industry well: “Business is good, but we have some challenges on the regulatory side.” Leading the Rochester area automobile sales growth are 1) cheap gas prices, 2) low consumer loan rates, 3) easy access to consumer credit, and 4) more positive consumer outlook.

Lower gas prices, which started to drop at the close of 2014, present two challenges. First, car manufacturers are now shifting production capacities from more fuel-efficient vehicles to other vehicles as consumers are buying more trucks and other vehicles with lesser fuel efficiency. Second, the knock-on challenge is that these automobile manufacturers still must comply with the Corporate Average Fuel Economy requirements based upon annual production mixes.

McAreavy also stressed the importance of the automobile dealer to the local economy. Automobile Franchise Laws that exist in New York require that all new vehicles are sold through a dealership, and not directly by the automobile manufacturer. However, Tesla Motors is challenging that status quo by seeking to offer vehicles direct-to-consumer.

McAreavy staunchly defended the dealership relationship: “The dealership is the advocate of the consumer.” He noted that this is particularly true in cases of automobile recalls and specialized repairs.

Mucci: Using data to understand economy’s strength

In April 2014, Paychex Inc. began using its customers’ payroll data in partnership with IHS Inc., a data-driven business intelligence company based in Colorado, to create the Small Business Jobs Index (the Index), which measures trends in small business employment.

The monthly report has garnered interest nationally, landing them a spot on MSNBC’s Squawk Box and other media outlets. The Index measures job creation at businesses with 50 employees or fewer, and uses a scale of 100, with 2004 as the base year.

Nationwide, the Index in December was 100.56, driven by energy growth in the center of the country. Locally, Rochester’s Small Business Jobs Index was 100.70, which represents nearly 1.2 percent growth within the last 12 months. Leading Rochester in growth are the construction and education/health sciences industries.

One of the other main drivers of small business job growth is how eagerly and efficiently companies embrace technology. “Small business can disrupt large business by using technology,” said Mucci.

Plympton: Minding the middle skills gap

Plympton’s company, Optimax Systems Inc., is a picture of success in the greater Rochester region. “We hired 50 people in 2014 and have 50 job openings posted now,” said Plympton. The optics manufacturing company employs 230 people in Ontario, and serves the aerospace, defense, medical/life sciences and consumer electronics industries.

“There is a misperception that manufacturing has left this town … and it’s still here,” said Plympton.  One of the largest challenges that he shared with the group is that Rochester suffers from the Middle Skills Gap. Middle Skills jobs are those that employ people with more than a high school education and less than a four-year college degree.

Plympton shared a study performed by Monroe Community College that the supply of Middle Skills jobs in the manufacturing space has fallen almost 160 open positions short of the demand in one year. With many manufacturing companies in Rochester looking to grow 3 to 10 percent in 2014, the Middle Skills Gap must be shored up. (The supply for the table that Plympton presented considered student graduates of Monroe Community College, and other area community colleges and trade schools.)

Conclusion: Cautious optimism ahead

Despite some of the overall regulatory challenges expressed by many of the panelists, there was an air of cautious optimism. Based upon the CEOs study respondents and a view into our local banking, automotive, small business and optics manufacturing industries, the economy is in a better spot than a year ago, but there is still some room for improvement.

Brian C. Hedges, CPA, is a manager at Mengel, Metzger, Barr & Co. LLP and he enjoys helping small business owners protect and grow their businesses. He can be reached at [email protected], or (585) 672-1883.