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Small Business Forecast – July 2011

July 14, 2011 By

Here is the most recent data released by the Federal Reserve regarding economic conditions in

the Seventh Federal Reserve District – Chicago.

Consumer spending. Retailers reported flat sales. Higher food and energy prices caused

consumers to make fewer shopping trips and purchase fewer discretionary items.

Auto sales edged up, as higher demand for passenger cars offset a slight decline in trucks and

SUV sales.  Auto dealers reported that inventory levels of small passenger cars were

impacted due to high demand for fuel efficient vehicles and production disruptions in Japan.

Dealers of Japanese vehicles expect that supply problems will continue to have an effect

the remainder of the year.

Business spending. Contacts indicated that capital expenditures were proceeding,

with some manufacturers reporting a slight increase in capacity.  Labor market conditions

improved with continued strength in manufacturing, where contacts again cited a

shortage of qualified applicants for highly skilled trades. A large staffing firm reported that

billable hours ticked up and permanent placement activity increased. However,

demand for temporary workers softened in some industries, such as finance.

Construction/real estate. Single-family home construction was constrained by distressed

properties in the resale market. However, existing home sales picked up, lowering the

in

ventory of unsold homes.  In the multifamily sector, residential rents rose further, and credit

has become increasingly more available for the purchase of apartment buildings.

Banking/finance. Corporate funding costs in the District decreased, and contacts noted that

corporate credit market liquidity remains ample. Banking contacts reported an increase

in business loan demand. Although much of this involved refinancing of existing debt,

contacts noted they were seeing more new commercial and industrial loans in the pipeline. Credit

availability, however, remained an issue for small business borrowers. Larger banks have

recently returned to small business lending, but community banks who have traditionally

serviced this segment remain impaired.

Prices/costs. Food and energy prices ended mostly lower, as did prices for steel, copper,

and other industrial metals. Despite the recent declines, commodity prices remain elevated, and

surcharges for fuel and metals increased significantly. Retailers reported they were unable to

pass along recent increase in wholesale prices, trying to compensate for higher commodity costs

by increasing promotions and discounts. Retail contacts also noted that margins were tight,

particularly for grocery stores, and further cost increases would likely be passed along.

Based upon this information, we recommend small businesses plan for moderate

improvement. Expect nonstop pressure by consumers to find the “best buy” which could

result in profit margin challenges.

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Summer Employment Outlook – Hot or Not?

July 5, 2011 By

When Harrison Demas, a sophomore at Loyola University, started his summer job hunt in March, he was determined not to “miss the boat” like he did last year. “But,” he says, “All my friends who started hunting around the same time also came up short. Those who did get jobs, got them through family friends. I looked outside of the food industry for manual labor type jobs, trying every public works office, car dealership, and park district I could. Since I’m better at selling myself in person than on the Internet, I went into stores directly, but the only business with a hiring sign in the window was a lingerie shop,” Demas admits.

Traditionally, students get summer jobs to earn income for school.  But, with our struggling economy, many of those jobs have disappeared or been taken by experienced adults desperate for employment. The City of Chicago, in conjunction with various businesses, will offer about 14,000 jobs to people between the ages of 14 and 21 through the Youth Ready Chicago program.

Even former Mayor Richard Daley admitted that due to lack of federal funding, there will be 4,000 fewer jobs available to young people this year.  Internships, apprenticeships and jobs within Chicago’s public and private business sectors are coordinated through partnerships with Department of Family and Support Services, After School Matters, Chicago Housing Authority, Chicago Park District and Chicago Public Schools.

If you want a true temperature read — hot or not — on the summer job scene, talk to a high school or college-aged applicant who’s been hunting. They know first hand what the market bears.

What do the companies say?

CareerBuilder reports that 23% of companies are hiring summer workers and McDonald's, Home Depot and Lowe's each plan to create at least 50,000 seasonal jobs for applicants 18 and older across the country.  Locally, Mariano’s Fresh Market is hiring 900 workers to fill manager, meat cutter and cake decorator positions at their two new Chicago stores. Plenty of companies claim this summer is business as usual.

Amy Schrage, Associate Director of Public Relations at Ravinia says, “We’ve kept our summer employee figures the same over the past few years. We continue to hire many summer workers from high schoolers to college grads and beyond in our various positions, including guest services, box office, production, Levy Restaurants and office internships.”

Chicago Botanic Garden, the second most visited public garden in the United States, hasn’t noticed a change in their hiring capacity. According to Tom Nissley, Chief Financial Officer, “Summer is our busy season, so we hire a lot of seasonal employees to maintain and improve the grounds. So far, this has been a typical year. We’ve hired 162 seasonal employees. We’re fully staffed at this point because the seasonal staff starts in March and April. But, many of these employees have experience and return year after year.  Some of our groundskeepers, who have a set job description, have been here 15 to 20 years.”

Internships provide numerous benefits

While that doesn’t help students who have more energy than experience, the Garden also has a federally sponsored and funded internship program. Interns work between 37.5 and 40 hours per week at $9 per hour and gain hands-o

n experience in the areas of education, horticulture, and research. The 72 interns from 15 states that have been hired are part of this mentor program, sponsored by the Bureau of Land Management and supervised by a team of CBG scientists that monitor their work. This is a unique program that helps students gain experience for their future profession.  Of course, students must apply early and many aren’t thinking ahead to the summer in February and March.

Internships are another great option for summer employment, with universities offering credit in fields like parks and recreation, education, child development and tourism. Working as a camp counselor or instructor is especially ideal if a student is majoring in education, sports, coaching, counseling or nursing. Camppage.com, greatcampjobs.com and coolworks.com are great websites for finding a camp job, ideally suited to a student’s skills and location.

Kari, Quaas, Human Resources and Recruiting Specialist for coolworks.com says, “I’ve been in touch with a lot of our job seekers and the competition has been tough this year. Some of our counselors secured their jobs as early as February. But, there are still a few positions open at various National Parks. The summer that took us by surprise was 2009. People weren’t sure what to do after the market crashed. Last year the camps hired fewer people, but 2011 has been on track. And there are still some camp jobs available!”

For next summer, college students should consider the Lewis Summer Intern Program through the Jewish United Fund. This eight-week paid work/study internship program matches students up with their personal interest to work in the Chicago Jewish community. All internships are hosted by agencies and/or departments of the Jewish United Fund/Federation. www.juf.org.

Start their own business

For those who haven’t had luck on their side, is it possible to take their sour job search experience and turn it into lemonade? Yes. The sobering reality of our limping job market has forced teens to become more resourceful and creative to find work and that’s a valuable life skill. For example, a talented student with language skills could do some tutoring.  A skilled swimmer could be a lifeguard or swim instructor.

Harrison Demas printed flyers that advertise his handyman skills and willingness to run errands and deliver groceries for minimum wage. He then distributed them all over the suburbs. He was hired as a part time delivery person for an Asian market. Chris Anderson, a high school student who says he’s always had a summer job until this year, also put flyers in mailboxes, advertising his willingness to do lawn work like digging holes and moving rocks.

Tiffany, (who preferred to remain anonymous) is embarrassed that she hasn’t been able to find a summer job. A graphic design major, she’ll be a junior at University of Colorado. After being repeatedly disappointed with her job search, she decided to work for herself. “I started my job hunt early and only found nonpaying internships,” she explains. “That was it. Because I’m artistic and a great seamstress, I decided I’d rent booth space at flea markets and fairs and sell the hats, jewelry, and t-shirts I make.  I’ll have to spend money on gas, driving into the mountains to find the fairs that don’t charge much for a booth. But, I’m willing to give this idea a try!”

It’s unfortunate that today’s students have been given a dose of reality before they’ve even graduated. But with the right attitude, such life lessons can prove just as profitable in the long run as money in the bank!

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Garden Fresh From Israel to Your Kitchen Table

April 1, 2011 By

By all appearances, Garden Fresh Market in Northbrook is a typical North

Garden Fresh founder Adi Mor surveys the bountiful selection of produce at the Northbrook location.

Shore grocery store. Harried parents push children in strollers for a predinner shop while busy cashiers speed customers through the long lines.
Discerning shoppers who regularly converge at the SUV-lined strip mall
just off the Edens Expressway, however, know what separates this store
from the pack.
A huge selection of hummus, for one, along with a choice of Israeli dairy
products one could easily find on the shelves of Supersol in Jerusalem. In a
word, Garden Fresh is the Israeli food shopping mecca in the Chicagoland
area, a fact not lost on the swarms of customers who visit from as far away
as Iowa.
“They have items you can’t get at major grocery chains,” exclaims Yaakov
Pole, a 32-year-old teacher from Buffalo Grove who frequents the store in
search of quality produce and competitively-priced Israeli products. “It’s
an excellent value.”
Garden Fresh founder Adi Mor is one of those rare individuals who truly understands what people want. Arriving in Chicago via Jerusalem in 1980 with no formal business background, he channeled his sabra sechel (sense) and powerful work ethic to grow one of the area’s most successful specialty grocery chains.
“Each one of our seven stores really caters to the particular community that it’s in,” he explains, attributing his niche success to diligence in product selection coupled with unmatched variety. Shelves loaded with Russian pastries and pickled vegetables reflect the Eastern European tastes of the patrons who shop the Wheeling location while Mundelein’s sprawling rows of hot sauces and peppers satisfy its largely Hispanic clientele.
“We go to the market every day to purchase fresh produce and carry twice as many items as a normal supermarket would,” adds Mor, who, as a
young soldier once had an all-night gig on Thursdays preparing challah at the famous Angel Bakery in Jerusalem. More than 30 years later, the
spry 55-year-old manages business affairs along with his 28-year-old son Golan and dozens of others at a modern corporate office and warehouse in Wheeling.
The Northbrook location, featuring its fully staffed “Kosher Korner” deli and massive selection of Israeli-branded items, is decidedly arranged with the Jewish consumer in mind. Mor says that shoppers routinely pour in from as far away as Iowa, Wisconsin, Michigan and Indiana to stock up on the kosher quality meat and other delights that arrive fresh daily.
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Paste”>“Supermarkets realize that kosher can be a huge magnet for a loyal base of consumers who, while looking for kosher products, also shop the rest of the store,” notes Menachem Lubinsky, editor-in-chief of KosherToday.com and founder of Kosherfest, the world’s largest kosher food and beverage trade show.

“Kosher is simply attracting more people because of the very diverse and quality nature of the products, making it much easier for Jews of all shades to buy into the concept.”
Mor recognizes that balancing the kosher element, which comprises 40 percent of the Northbrook store, with the varying demands of the broader community is the key to maximizing overall value.
“Our business is very unique in that we’re open seven days a week and still able to serve the kosher and non-kosher communities,” he says,
acknowledging that fresh produce remains a prominent drawing card at each location.
With Passover looming, the search is on for birthday cake buried deep in the freezer or the errant crouton lost in the couch. And while many people begin their chametz sweep several weeks before the first Seder, Garden Fresh has been preparing to commemorate the Exodus from Egypt since Chanukah in December.
The shift from shelves of leavened luxuries to a sea of matzo and macaroons takes months of careful planning, Mor says, with much of the stock ordered from suppliers in New York, as opposed to Israel, to ensure maximum freshness. During the eight-day holiday, the Kosher Korner is temporarily shuttered and sold to a non-Jew in accordance with Jewish law.
Garden Fresh also takes pride in providing its kosher catering services to local institutions such as Solomon Schechter Day School in Northbrook,
which coordinates a student lunch program described by Mor as “reasonably priced, healthy and wholesome.”
“We’ve had a great response from parents,” said Julie Smolucha, Garden Fresh’s marketing director. The variety and nutritiousness of the food, she says, allows children “to function better in school.”
Mor enjoys showcasing a plethora of popular Israeli products, from diet grapefruit juice to organic peeled roasted chestnuts in his stores, many of which have found their way onto shelves at the request of customers.
“Some of the big vendors realize that we put them on the map,” he contends. According to Lubinsky, Israeli manufacturers are rapidly becoming more attractive to American buyers buyers as competition for market share widens.
“New products that bring something to the table, forgive the pun, will continue to make it onto supermarket shelves,” he says. “Israel produces
quality products in great packaging, making them very competitive and desirable. Israeli brands have a natural base in the U.S. but they still have to compete on quality and price.”
That’s certainly good news for Garden Fresh, reflecting Mor’s vision of providing Chicagoland consumers with their favorite fare at a great value.
“We give the customer what they want,” he maintains. “We cater to the neighborhood.”
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Illinois Open for Business?

March 31, 2011 By

Will our state’s dramatic tax hikes kill economic growth?
The last time Illinois raised taxes was in 1989, when Gov. James Thompson passed what was then among the highest state tax increases in American history: 20 percent. That was exactly 20 years after the state income and corporate taxes were created, and it was another 22 years before a huge budget deficit drove the state to raise taxes again.
When it ultimately did so, on Jan. 12, Illinois raised those rates dramatically. Such a huge increase, all coming at once, can’t help but have a serious impact on both consumers and businesses – and therefore the future of Illinois business. In the weeks since the tax hike, local business owners have had to contend with the new reality and what it will mean for their ledgers.
“The biggest thing we’re going to see is the tax increase will definitely affect the bottom line for most companies,” says Tomer Laks, president
and CEO of Phasecorp, a business consulting firm on Chicago’s north side. “And that will affect their decision-making processes, whether
that’s hiring employees, buying equipment, or buying real estate – and all that will impact their growth.
“The problem is businesses, like most entities, like to be able to plan ahead. They don’t like surprises. And such a substantial increase all at once was a major, major surprise.” With the increase, the state tax rate on individuals shot up by two thirds, from 3 percent to 5 percent, while the corporate tax went from 4.8 percent to 7 percent. And both rates were passed retroactive to Jan. 1 of this year.
The Illinois corporate tax rate was introduced in 1969 by then-Gov. Richard Ogilvie, at a rate of 4 percent. The existing 4.8 percent rate had
stayed constant since July 1, 1989. However, that rate doesn’t include the state’s personal property replacement tax – a 2.5 percent tax on
corporations (1.5 percent on partnerships and S-corps) that passed in 1979. The state department of revenue collects the replacement tax,
though the revenue goes to local (rather than state) governments.
So, from a business perspective, the new 7 percent rate will feel more like 9.5 percent. And because Illinois’ individual and corporate income taxes use a flat rate, small local businesses face the same percentage increase as multimillion-dollar corporations that can more easily absorb the costs. (Fourteen states have progressive corporate taxes with lower rates for corporations below certain income levels).
Larger companies can also benefit from specific tax breaks that often aren't available to small business. For example, in early February, Illinois announced $29 million in tax incentives over 10 years for Mitsubishi, which employs about 1,300 people at its downstate plant in Normal, to ensure the company would keep the plant here. The state has previously used large tax-break packages to attract businesses such as Boeing.
The Chamber of Commerce and other business lobbying groups have expressed concern that the new rates will hurt Illinois’ ability both to
recruit and keep businesses.
“For most of us, it’s going to be a case of we are where we are,” says Tom Sodeika, president and CEO of Oakbrook Terrace-based Precision Payroll of America. “But it depends on the type of business. If you’re operating a call center or are dealing with a not-highly-skilled workforce that can be easily replaced, maybe you go somewhere else.
“In our case, we built our business on the quality of our people, andI know I would never be able to move and find the same quality of people I have right now. We wind up in kind of a Catch-22.”
Shortly after the tax increase passed, a few businesses openly spoke of moving out of state. For example, the founder of the nationwide sandwich shop Jimmy John’s – which employs about 100 people in Champaign, wh

ere it was founded – said he would consider moving the company to Florida. New Jersey Gov. Chris Christie has already started a marketing campaign aimed at recruiting Illinois businesses, while the city of Indianapolis ran a full-page ad in the Chicago Tribune encouraging companies to move there.

However, it’s still unclear how real those threats will be, and whether out-of-state pastures will prove greener.
The Washington-based Tax Foundation – a nonpartisan think tank that advocates for lower taxes – dropped Illinois from 23rd to 36th among states in its State Business Tax Climate Index after the passage of the Jan. 12 tax hike. Even still, it ranks the state ahead of neighbors Wisconsin, Iowa and Minnesota, though lower than Indiana and Missouri (which it ranks 10th and 19th, respectively). While New Jersey has made a fair number of headlines for its recruitment efforts, that state faces its own budget deficit of about $10.5 billion this year. It was such a deficit – estimated at $13 billion dollars – that caused Illinois to pass the tax hike (as well as borrow additional funds).
What’s also hard to measure is what opportunity costs the increased tax burden will have for Illinois business as a whole. There’s no way to know how many out-of-state or even international businesses would have been recruited to set up shop here, or how many jobs those businesses would have created. At the start of the year, the Illinois unemployment rate sat at 8.8 percent – down from the high of 12 percent it had hit in February 2010, but still high for any point in the last two decades.
“With unemployment where it is, there are a lot of entrepreneurial and talented folks who've been out of work and could use their skills to start small businesses,” Precision Payroll’s Sodeika says. “With the tax rate where it is now, that creates a higher barrier to entry for those people who are looking to start up.”
While obviously difficult on the business community, the tax hike was inevitably going to be high after 22 years without an increase. Former Gov. Rod Blagojevich, for example, repeatedly vowed not to raise income or corporate taxes, instead borrowing record sums to cover the state budget.
That left Illinois with the lowest credit rating among all states (tied with California, according to Moody’s Investors Service), unpaid balances to key recipients like schools and hospitals, and a deficit roughly half its total general-fund budget. The low credit rating also increased the cost of insuring the state against default. And while the $13 billion deficit got a lot of attention, the state also had an additional $6 billion in unpaid bills and $4 billion in underfunded pensions.
The state also had limited flexibility in terms of spending cuts. According to data from the Chicago-based Center for Tax and Budget Accountability, Illinois’ spending ranked 43rd among states in 2010 as a percentage of state GDP, and the state already had a low level of
funding public services compared to other states.
There’s no question the bill is now coming due, though it will be some time before we know if the tax hike did enough to address the shortfall or whether it prevented additional growth in the business sector. As of now, the increased rates – both for individual and corporate taxes – are scheduled to stay in place through 2015, at which point they’re expected to drop down to 3.25 percent and 5.25 percent. They’re scheduled to drop again in 2025, and the tax package did include state spending caps that – if violated – would trigger a lower tax rate.
“In a couple years, we are going to be able to review the data of the tax effect, and see what this has done in terms of reducing the number
of viable business in the state,” Phasecorp’s Laks says. “The worry is that, at a time when the economy on the global scale is starting to recover from the recession, this tax cut will lead to economic stagnation in the state. If that happens, it’s a big problem.”
—
Jeff Fleischer is a Chicago-based journalist and author who has written for
publications including Mother Jones, the Sydney Morning Herald, National
Geographic Traveler, the New Republic and Chicago Magazine.
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