2011 Annual Preview: Climbing out of the hole



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Last week, Jordan. Today, Guatemala. It's been Canada all year. Rokon International Inc., a Rochester-based manufacturer of all-wheel drive motorcycles, has always sold a lot of its products overseas, but now foreign sales account for nearly a third of the firm's business. And that's kept it going despite the biggest downturn in the economy in half a century."Without the exports, we'd be in trouble," said Tom Blais, Rokon's president and owner.Actually, so would the state's economy.New Hampshire is climbing out of the recession faster than the rest of the nation. The state's recovery has been relatively broad-based, in just about every sector, except financial services.Even so, it has been a climb full of pitfalls and setbacks. So to get traction, a recovery needs something solid to tie a rope to. In other recessions, that rock has been either high tech or housing or consumer spending or tourism but - as you will see and probably already know - all of these sectors have had their own problems. Exports have been the exception."We are going to have a banner year," said Justin Oslowski, director of the U.S. Department of Commerce's New Hampshire Export Assistance Center in Durham.In the first 10 months of 2010, the state exported $3.5 billion in goods and services, a 39 percent increase from 2009 that should easily smash the 2008 record of $3.7 billion, according to figures from the state Office of International Commerce.Overseas customersWhile "exports are hot," as Oslowski said, the rest of the economy has been lukewarm. Or, as Fred Kocher, president of the New Hampshire High Technology Council, put it, "like slogging through mud."For instance, the state's November unemployment rate - at 5.4 percent - is a full 1.5 percent lower than last year at this time, and way below the national rate of 9.8 percent. There have been bright spots in nearly every sector of the economy, but there have been storm clouds too, including record bankruptcies and foreclosures, along with government layoffs.But let's start on the sunny side. GT Solar, the Merrimack-based maker of equipment and materials used in the manufacturing of solar cells, reported $560 million in revenue over the last three quarters, mostly from exports to customers in Asia.GT Solar might account for a sizable chunk of the state's $3.5 billion in exports so far this year, but much of the growth is coming from smaller companies, giving the state the third-largest increase in exports in the country. The goods being shipped come under 100 different product listings, and they're being sent to nearly 200 countries, said Oslowski."The international distribution and the level of sophistication of New Hampshire exports makes other states very envious," he added.The aforementioned Rokon is a relatively small company with only $2 million worth of sales. It has always stressed exports, but when the U.S. market hit a rut, it revved up overseas.Much of its business is from Canada, which started buying more U.S. goods when our dollar plunged, but the company is also shipping to the Middle East and Latin America.Similarly, Globe Manufacturing Company, a Pittsfield firm that makes protective suits for firefighters, saw its exports grow from 6 percent to 10 percent of its business, adding up to some $6 million in revenue. As municipalities cut back, Globe's products were being sold to firefighters in Saudi Arabia, used to quell fires at oil refineries."I have to give my kudos -I'm not a huge fan of government - but we have a pretty crackerjack group with those international trade folks at DRED (Department of Resources and Economic Development)," said Robert Freese, senior vice president of marketing at Globe. "We have not had layoffs, and we actually hired a few folks recently."Gradual job growthSince last November, New Hampshire has gained about 17,000 jobs.But "we are only halfway home. We have recovered a little more than half the jobs we lost in the ‘great recession,'" said Dennis Delay, an economist with the New Hampshire Center for Public Policy Studies.Both Delay and Laconia economist Russ Thibeault point hopefully to the growth in manufacturing jobs over the year - 3,000 of the 17,000 created were in the manufacturing sector. Yet on the flip side, the state lost 10 times that number in manufacturing jobs over the last decade.Then there is sluggish growth in the labor force, which increased by only 1,700 over the year, meaning that by November hardly anybody sitting out on the sidelines has started looking for work again. When and if they do, jobs will be harder to come by for everyone else.Another area of concern: State and local governments may throw 21,000 workers on the unemployment rolls throughout in New England, according to an estimate by Ross Gittell, an economist at the University of New Hampshire's Whittemore School of Business and Economics. And after the last election, no one is looking for a federal bailout to help the states with their finances.Finally, over the last year more than 5,000 people - a record - have filed for bankruptcy. That means a lot of businesses can't collect and will have to write off the debt.The high-tech ‘slog'In the past, the high-tech sector has helped lead New Hampshire out of recession. But, as the High Tech Council's Kocher said, it's hard to lead when slogging through mud.One problem is capital - either from banks, venture capitalists, angels or potential customers - is still hard to come by, said Jim Cook, a Manchester attorney who works with high-tech firms."On the ground, it's not a good time to raise money," said Cook.There are exceptions to every rule, of course. SubItUp, a Manchester startup, sells a Web-based application that allows employees to go online and find substitutes and change their own schedules, eliminating the need for a human resources manager to do it. Already it has the Massachusetts Institute of Technology, the Manchester Police Department and the Common Man Family of Restaurants on board."It's direct savings to the bottom line," said Bob Cote, chairman and chief executive. As for raising funds, "we were able to be selective about who funds the company."Housing still stuckThe housing market, a way out of past recessions, got us into this one. For a while, the $8,000 tax credit gave the state's real estate market a needed boost, but when that ended, so did much of the sales activity, leading to a November year-to-year drop of 27 percent.The market appears to be ending the year in a wash, with New Hampshire home values to date up by 1.4 percent and sales down by 3.1 percent. Unfortunately that's pretty much the same picture as 2009, which was a terrible year."I've been in business for 26 years, and I've never seen a market like this," said Nancy Philbrick, a broker with Prudential Verani in Londonderry.A record number of foreclosures has put a damper on any revival too.By October, there were already more than 3,500 foreclosure deeds filed this year in New Hampshire, only 40 shy of the 2008 record.The second-home market has picked up a bit, "but it's surprising there isn't more activity," said Jim Lyon, a Conway Realtor. Buyers "are still in the driver's seat, even in highly desirable properties, with a view or waterfront."Commercial real estate is also slow, according to Nashua broker Michael Monks."We are starting to see people from Massachusetts come up looking, but that doesn't mean that deals are being done," he said.Construction awards picked up in October. But those figures might be misleading. The stimulus package and recent state bond issues have provided substantial work on highways and bridges, said Gary Abbott, executive vice president of Associated General Contractors of New Hampshire, but this is mostly because of a few major projects, such as the Memorial Bridge project in Portsmouth and the widening of Interstate 93."Smaller contractors won't be able to get much work on those," he said,As for homebuilders, they are still taking jobs they would have turned their noses up at several years ago."The biggest problem," said Greg Rehm, owner of Liberty Hill Construction in Bedford, is that homebuilders are coming into the remodeling market. "They are pricing too low, he said, because they don't understand that the margins are a lot larger building a new home than remodeling an old one."Shoppers returnBefore the Christmas season, more than half (59 percent) of members surveyed by the Retail Merchants Association of New Hampshire said that sales were the same as or better than in 2009, and 74 percent said they expected the same during the holidays.While the results are not in locally, nationally Black Friday was up 9 percent and cyber Monday 20 percent."And consumers are not just buying gifts for other people, they are also shopping for themselves. They haven't done that for three years," said the association's president, Nancy Kyle.There are not only more people in the mall parking lots, "but people were carrying packages. It's not gangbusters, but we definitely turned the corner and are coming back," she said.But such optimism has not translated in hiring.There were 95,200 retail trade jobs in November, only 300 more than last November. Why?David Souter, vice president of New Hampshire-based appliance retailer Baron's Major Brands, offered one explanation.Yes, the year was slightly better. Yes, the stores were busy selling on black Friday. The problem was that manufacturers were offering such deals - that had to be matched by the merchant - that the store was making very little money."It hurt the retailers to sell on that weekend," he confided. "The manufacturers created their own monster. They set the expectation to offer the great deals, but they don't provide a lot of profit."As a result, he said, "we aren't likely to hire," in the near future.Auto dealers also have noticed a slight improvement - nearly 83,000 new titles have been taken thus far, about 5,000 more than last year at the same time.And only two dealers - former GM franchises - went under this year."Things are absolutely better than last year, but then again things couldn't get worse than last year," said Peter McNamara, president of the New Hampshire Auto Dealers Association."It's going to be a slow, slow way back," agreed Scott Holloway, an owner of Holloway Pontiac Buick GMC Cadillac in Portsmouth. "It's 50 percent over last year. But that is 50 percent from almost zero."He said the biggest comeback has been the SUVs."As soon as you get them, they go out," he said. "The government would like to drive people to energy efficiency, but if you have three kids that like to ski, you need the space."Tourism: could be betterTourism is also up, but just barely. State rooms and meals tax revenue through November is up 4.3 percent. The hotel occupancy rate was 54 percent through August, 4 percent higher than last year, which "was terrible," said Mike Somers, president of the New Hampshire Lodging and Restaurant Association.The summer of 2010 was a pretty good season, according to the state's tourism barometer - some 3.1 percent more visitors and spending up by 6.3 percent. But that made up for a lackluster winter when there was an 18.9 percent decrease in snow cover and spending fell 6.4 percent.One hopeful sign has been the return of corporate groups and events in the second half of the year, said Shari Young, director and vice president of LodgeSys Management, the company that runs the Sheraton Portsmouth Harborside Hotel. Still, there is a glut of hotel space in Portsmouth, so the hotel has to grab more market share to hold its own, she said.However, LodgeSys opened Hampton Inn & Suites in Exeter to take advantage of those visiting the hospital and the Phillips Exeter Academy, as well as other corporate and leisure business, and that facility has met expectations.Restaurant owners tell the same story. "Things started to pick up in early summer," said Tom Boucher, chief executive of Great NH Restaurants Inc. (owner of T-BONES Great American Eatery and CJ's Great West Grill), with sales up by 5 percent. "I'm pleased."A good sign for the future: Sale of gift cards rose 15 percent, perhaps a harbinger of things to come.Speaking of the future, the Business and Industry Association of New Hampshire recently surveyed some 300 members about their outlook for the coming year.Forty-seven percent of those surveyed said they expect economic conditions to get better in 2011, 29 percent said they expect them to stay the same and 16 percent expected things to get worse in 2011.That's about the same as in the previous year."Cautious optimism. The majority had a better year than 2009. But that having been said, 2009 is the worst economy in 50 years," said Jim Roche, BIA president.Bob Sanders can be reached at bsanders@nhbr.com.

 

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