Business confidence problematic in area, survey shows

Although confidence among Rochester’s business leaders is up this year over last, it remains below the breakeven point, and CEOs across the rest of upstate are feeling more optimistic than those here, an annual report from the Siena College Research Institute (SRI) shows.

The RBJ-Siena Business Leader Survey, a component of the SRI Upstate New York Business Leaders Survey, interviewed more than 100 Rochester-area CEOs to gauge the region’s economic outlook.

“On the positive side, Rochester’s the only region in which all three of the numbers are up from last year,” said SRI director Don Levy, referring to current, future and overall CEO confidence. “And the numbers are better than they’ve been every year going back to 2011, except in 2014.”

SRI interviewed more than 460 CEOs from Buffalo, Rochester, Syracuse and Albany for its 11th annual survey, sponsored by the Business Council of New York State Inc.

Across upstate, overall confidence fell to 97.1 from 103.8, but remains nearly four points above Rochester’s overall index of 93.4. Still, Rochester CEOs are more confident than they have been since 2014.

Future confidence in Rochester is 97.2, a nearly four-point increase from a year ago, indicating growing optimism. Current confidence in Rochester rose 5.6 points to 89.6 this year, but remains 5 points lower than the upstate number.

Across upstate, CEO confidence increased in the wholesale/distributing, food and beverage and manufacturing sectors. Confidence in the financial, engineering, service and retail industries declined from last year.

“I like to look at engineering and construction; it’s right at the breakeven point, so it’s solid,” Levy said. “But it’s down appreciably from last year, most especially in terms of the future.”

If the engineering and construction industries are doing well, for example, working on homes, buildings and infrastructure projects, Levy added, it’s a positive sign for the future.

“They remain solid but they’re not as bullish as they were a year ago,” he added.

Statewide, Levy noted, CEO confidence in the retail sector is on the downswing.

“We found this year that the retail sector across the entire state is in trouble. Their numbers are down significantly; they’re having a hard time,” he said. “If everybody was a retail business the economy would look sort of how it looked between 2008 and 2009.”

Twenty-two percent of Rochester’s business leaders say that business conditions in New York have improved over the last six months, while 31 percent say they have worsened. Some 30 percent expect improvement in the state’s economy, while 31 percent expect worsening.

Looking to the future, 45 percent of Rochester-area CEOs expect their revenues to increase, roughly unchanged from a year ago, but below the 49 percent rate across the rest of upstate. Seventeen percent expect revenues to decrease.

Some 37 percent plan to see profits increase in 2018, while 36 percent expect profitability to remain constant and 27 percent expect a decline.

Plans to invest in fixed assets are up this year. Some 54 percent of Rochester CEOs anticipate investments, a six-point increase from a year ago. But while spending may be on the rise, the percentage of local CEOs planning to increase their workforce was down from 37 percent to 29 percent this year. Twelve percent plan to decrease their workforce, up from 8 percent a year ago.

“A slightly disturbing sign is that we saw a decrease in the percentage of CEOs who said they intend to hire this year,” Levy said, noting 40 percent of the CEOs in other upstate regions expect a hiring increase in 2018. “The best we ever saw was a 6-to-1 ratio of hiring to downsizing, and that was in the pre-recession days. So we’ve never gotten fully back to that.”

A majority of CEOs this year again said they intend to enhance profitability through increasing the demand for their product or service. Fourteen percent said they planned to do that through price increases. Many in the Rochester market continue to focus more on cutting than on growth.

“I look at the ratio between those who say they’re going to focus on increasing their market share and/or the demand for their product, to those who say I’m going to focus on reducing costs. And right now in Rochester, while it’s positive at 38 percent to 30 percent, in some areas at some times we’ve seen better than a 2-to-1 ratio,” Levy said. “For years we’ve said that while it’s important to run an efficient operation, that cost reduction is a difficult way to move forward. We still see a third of CEOs saying that’s what I’m doing.”

While 61 percent of Rochester business leaders expect to be in business in New York a decade from now, that’s down slightly from last year, and just 30 percent say that if they had it to do all over again they would still locate their business in New York rather than someplace else.

When it comes to governmental issues, Rochester’s CEOs again gave poor grades at both the state and federal level, although area business leaders are far more positive toward the federal government than the state this year.

Nine percent say that the state government is doing an excellent or good job of creating a business climate in which companies like theirs can succeed. Some 89 percent give the state government either a fair or poor grade. The numbers are closely aligned across upstate and have changed little in the last five years, SRI reported.

Looking ahead, 17 percent of Rochester’s CEOs are somewhat or very confident in the ability of state government to improve the business climate over the next year, up slightly from 14 percent last year. The vast majority said they are either not very or not at all confident.

Not surprisingly, the top three areas business leaders would like to see the governor and Legislature focus on are business income tax reform, spending cuts and personal income tax reform.

Rochester’s CEOs’ view of the federal government has risen dramatically over the last year. Some 30 percent, up from 8 percent, say the federal government is doing an excellent or good job of creating a business climate in which companies like theirs can succeed. Thirty-nine percent said they were either somewhat or very confident in the federal government’s ability to improve the business climate in the coming year.

“We see a pretty dramatic increase in the appreciation that CEOs have for the direction the federal government is taking us,” Levy said. “We’ve asked questions about state and federal for a number of years and the point I used to make is, as bad as they feel about the state government, they feel worse about the federal government. Well, that’s changed.

“We know that this population—we get this information anecdotally—that they tend to be conservative in nature politically, so they’re more likely to feel good about a business-oriented government in D.C.,” he added.

This year’s survey shows the dramatic impact specific policies have on upstate business leaders, said Heather Briccetti, president and CEO of the Business Council.

“Despite a strong national economy, survey respondents know that upstate is in many ways being left behind,” she said. “Increased state-level mandates and regulations are clearly having an impact on employers’ outlook and their ability to create jobs, and this survey demonstrates that changes are needed before Upstate New York employers will be willing to expand their workforce.”

When asked about the local workforce, Rochester area business leaders expressed frustration in a number of areas, notably in the areas of work ethic, realistic salary expectations and verbal and writing skills.

Some 77 percent said work ethic was a somewhat or very significant problem, while 76 percent said having a realistic salary and benefit expectation was an issue. Surprisingly, 64 percent said use or abuse of drugs and alcohol was a somewhat or very significant problem with the local workforce.

“It is striking. But really, it’s an indictment of the workforce,” Levy said.

Some of that frustration could be a generational divide, Levy said, acknowledging though that there was a tension between the C-suite and the workforce.

“Wouldn’t you rather be someplace where the people who ran companies were saying we have the best workers in the world here in Rochester,” he asked. “But rather, they’re saying I’m not happy with the workforce, they want too much, they don’t work that hard, they don’t walk in with the skills that I need and I’m concerned about whether they’re using drugs and alcohol.”

But it could be, Levy suggested, that Rochester area employers are not embracing innovation and disruptive technologies enough to pique the interest of said workforce.

“Maybe the expectation is that the people running our companies to some degree ought to be innovative,” Levy explained. “They ought to be facing the new challenges of doing business here in a changing marketplace. And really only about one-quarter of them, on a series of different managerial components, are saying they would describe themselves as very innovative.”

When asked about disruptive technologies and innovation, only a third of area CEOs said they were very innovative in any one area, although 61 percent said they are either somewhat or very familiar with the conversation about disruptive technologies. Still, 78 percent see disruptive technologies—such as the internet of things, renewable energy, automation of knowledge and advance robotics—as an opportunity rather than a threat.

“It’s perhaps a stalemate that both sides, labor and management, need to take a look at. If management is saying I’m unhappy with the workforce, yet at the same time I’m slow to both innovate and incorporate new technologies into the business, perhaps CEOs ought to consider where technologies can step in and create some more vibrancy,” Levy suggested. “It would be beholden of the workforce to look at this critique and say, how true is this? How is my work ethic? Do I have realistic expectations? So we’re challenged at both the C-suite and the shop floor.”

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