May 3, 2006
By Christine Torode, Staff Writer

Entrepreneurs watch current affairs for
what affects their business

PEABODY — Oil giant ExxonMobil is the most profitable company in the country, and the Federal Reserve is expected to raise interest rates yet again this month.

These are only two economic trends small businesses need to pay attention to as they plan out their own financial future, said John Bitner, senior vice president and chief economist for Eastern Bank, yesterday during a Salem State College Small Business Development Center (SBDC) workshop at the Holiday Inn in Peabody.

"Economics should be considered current events and not some relic sitting on a shelf," Bitner said. "Look at the headlines, watch not just what the Senate is doing, but local city councilors. All these decisions and headlines have an impact on you. ... The high energy crisis will have an impact on consumer behavior."

Which is exactly what Ron Morin, owner of National Charters, came to learn about. Morin's Manchester-based business offers lessons in navigation for boaters and captaining services for boat tours, as well as services scattering ashes at sea of people who have been cremated.

"We expect to absorb the higher fuel cost on behalf of our customers," Morin said. "But if it hits $5 a gallon, we'll no longer be able to do that, and our profit margins will be a little less.

" He's already expecting a slower season for boat navigating lessons as boat manufacturers report slower sales, which in turn, Morin believes will translate into less people looking to learn how to operate a boat, he said.

Yet despite economic pressures on people's wallets, consumer spending on a national level remains steady, Bitner said.

"People are not afraid," Bitner said. "Despite high energy costs and higher interest rates, they're still spending. What should be a concern, however, is that people today are in more debt than they ever have been and they have less savings. If we go into a recession, and history shows you it will happen again, consumers who are in such debt could be in serious trouble and will curb their spending."

About 69 percent of the Massachusetts economy is driven by consumer spending, Bitner said.

"As the consumers go, so goes the economy," he said. Rising interest rates also hit consumers, hitting them in the pocketbook and, in turn, affecting the real estate market.

Existing home sales in fourth quarter 2005 were down 4.2 percent in Massachusetts compared to the same quarter in 2004, versus sales across the country being up by 0.3 percent.

Such factors have an impact on local real estate agents' ability to sell homes, cut into local banks' mortgage business and ultimately slow consumer spending, Bitner said.

At the same time, Massachusetts is losing its population, which also affects how much is being spent at businesses around the state. Between 2000 and 2004, Massachusetts lost about 150,000 of its residents, according to the American Community Survey on the U.S. Census Bureau's Web site.

Bitner said he is sure that the state has lost some population since then, but the next official census does not come out until 2010.

"When an area loses its population, that means less people getting haircuts, buying things at their local hardware store or buying a house," Bitner said.

In other words, small businesses in Massachusetts are feeling the bite from a diminishing population that translates into fewer buyers of goods and services.

Despite the declining population and interest rates' affect on the real estate market, one bright spot, Bitner said, has been sales of condominiums, which have increased in the last 12 months by 2.4 percent. Single-family home sales have also been up 2 percent, according to the Massachusetts Association of Realtors. However, statistics by independent real estate consulting firm The Warren Group in Providence, R.I., state home sales have decreased by 8.4 percent in Massachusetts in the last year, Bitner said.

Those conflicting numbers aren't the greatest news if you're starting a new home-inspection business like Donald Bissex of Melrose, who is opening Mystic Home Inspection.

"If real estate slows down, it has an obvious affect on my business," said Bissex, who attended yesterday's event.

But if your business serves the corporate world, it's probably in the black, or soon may be, Bitner said.

"Corporations are really flush right now," he said. "They have a lot of money. I know a woman who specializes in interior design for corporate headquarters and she is turning business away."

Steven Levy, an independent sales and marketing consultant in Marblehead, believes his business may soon be getting a boost.

"It was good to hear that corporations are spending more money because I am mostly involved in business-to-business marketing," Levy said.

Bitner touched on many national trends but also provided a wealth of online resources to help small businesses identify the economic health as well as demographic makeup of the cities and towns they serve.

The Bureau of Labor Statistics' Web site, www.bls.gov, shows that the unemployment rate in the Peabody-Lynn-Salem area is rising, for example, and the Federal Reserve of Boston's Web site, www.bos.frb.org, shows consumer confidence — how optimistic individuals are about the state of the economy — is slipping in Massachusetts.

"People living in Massachusetts are not feeling as perky as the rest of the nation," said Bitner, explaining that as of January, the consumer confidence index rate in Massachusetts was down 15.6 percent compared to the same time last year.

Businesses considering Massachusetts as their home base are not all that confident, either.

"A lot of businesses that look at moving to Massachusetts pass," Bitner said. "Part of this is having to pay people here higher wages, with the average salary in Massachusetts being $44,000 and the national average being $33,000. But there is hope here. You really have an advantage with your scientific centers, hospitals and universities. I was talking to someone from Schlumberger who was putting an office in Cambridge with 80 to 85 people. I said why would an oil company want an office here, and the man said it was because they wanted an office near the MIT Labs and near creative minds."

Tools to research the local economy:

* Federal Reserve Bank of Boston: www.bos.frb.org
Offers New England regional and state data. Monthly and quarterly online publications.

* Commonwealth of Massachusetts: www.mass.gov
Makes available state government and business contact information, as well as demographic and economic data.

* MA Department of Workforce Development: www.detma.org
Includes state employment data.

* University of Massachusetts Boston: www.mccormack.umb.edu
Gives Massachusetts demographic, financial and economic data.

* Bureau of Economic Analysis: www.bea.gov
Includes national and state economic data as well as industry specific data.

* Bureau of Labor Statistics: www.bls.gov
A source for national and state labor statistics.

About Us  |  Services  |  Advising Centers  |  Training Seminars  |  Find Closest Office  |  Outreach Sites
Client Profiles |  Impact  |  MSBDC in the News  |  Business Links  |  FAQ  |  Contact Us  |  Home

_______________________________________________
Copyright 2008  University of Massachusetts Amherst. Site Policies.
This site is maintained by the MSBDC Network