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Business Observer Friday, Aug. 19, 2022 1 month ago

Recession conundrum reaches deep into the region, with multiplying impact

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Between an onslaught of data, inflation, job numbers and more, a solid grasp of what’s known as the dismal science has rarely been more essential to running a business better.
by: Mark Gordon Managing Editor

Jay Vandroff seriously considered spending at least $250,000 on three new trucks for his family-run moving and storage company earlier this year. Then he paused. And kept on pausing.

Heading toward September, the company, Sarasota-based Yarnall Moving and Storage, has yet to buy the new vehicles. In talking about the delay, Vandroff sounds, to a large extent, like he’s in a time warp, using 2008-2009 recession words like “cautious optimism.”

“We’re going to hold off on making a big purchase like that until we get a better idea of where the market is going,” Vandroff says. “We are being very careful about the future.”

It’s not just the turbulent economy that gives Vandroff pause: he laments even if he added trucks, he doesn’t have the employees to drive the vehicles and move the stuff. “The No. 1 challenge I face is finding labor.”

Jay Vandroff with Sarasota-based Yarnall Moving and Storage says his company is being careful about big purchases. (Photo by Lori Sax)

Vandroff’s buy or don’t buy paradox is becoming as common as pythons in the Everglades. And like a slithery serpent, defining the economy in the region right now is a slip-through-your-fingers exercise. That makes uncertainty — scarier than snakes for many entrepreneurs — a daily facet of nearly any business.

That uncertainty is top of mind for many executives across the region. 

One, Buddy Foy, who, with his wife Jennifer Foy, owns The Chateau Anna Maria in the Waterline Marina Resort on Anna Maria Island, says uncertainty has driven him to behave as if the economy is in a downturn — regardless of the metrics. Foy has been planning to open a second location, in Sarasota, for months, with the latest potential opening date in November. “I’m doing inventory every day,” he says. “It’s survival of the fittest and you have be on top of everything. There are more external forces at play against you than ever before.”

Read more: Fear of a recession, rising rates means a change in how housing market is seen

Another executive, Jeff Jackson, president and CEO of window manufacturer PGT Innovations, the fifth-largest employer in Sarasota County, says from housing to manufacturing, the anxiety over the economy is palpable. “My fear,” Jackson says, “is very simple and based on the fact that the federal reserve has never been able to slow down the economy from an inflationary environment growth to more of a stable environment without causing a recession.”

 

Red hot hiring

Contradictions, in more than a dozen interviews with area business owners, leaders and executives, abound in telling the story of where the economy is now and where it’s going. Vandroff, for one, says the past year or so has been some the best years for the moving company, despite the labor shortage and other issues. “Business has been very strong,” he says.

Yet Vandroff also believes we are in a recession — sort of, with the caveat being income brackets can either be a help or a hindrance, depending on where someone falls. “From my perspective, I see it, I feel it,” he says. “But I don’t think it will impact everyone in Sarasota, like the higher incomes, the same way it might others. But I do think we are in a recession.”

Another example is from Matt Becker, who owns a pair of PrideStaff franchise staffing agencies in the region, one in Tampa and one in Clearwater. A former political consultant for Steve Forbes and an SBA official in the George W. Bush Administration, Becker says he doesn’t think Florida is in a recession — yet. And that, he believes, could be a year away. “Hiring is still red hot,” he says. “Only the mortgage industry has begun to pull back.”

Matt Becker, who owns a pair of PrideStaff franchise staffing agencies in the region, in Tampa and Clearwater, doesn't believe we are in a recession — yet. (Photo by Mark Wemple)

At the same time, Becker, in his front-row seat to hiring trends, says with costs for gas, groceries, rent and medical care soaring, the labor shortage will only get worse if companies don’t significantly raise wages. Of course, the cycle of inflation presents another contradiction, because, simply, if companies are selling less goods and services, that makes it harder to execute wage increases.

Read more: Recession warning sign? Layoffs pick up between June and August

Return to the restaurant industry for yet another contradiction, which has been walloped by a triple-whammy of inflation, cost increases and the labor crisis. Yet east Manatee County-based breakfast-lunch-brunch leader First Watch posted a stellar second quarter. The highlights from the report, released Aug. 9, include a 20% year-over-year increase in system-wide sales, from $192.6 million to $231.2 million; same restaurant sales growth of 13.4% and 30.2% over the last second quarter before the pandemic; and same restaurant traffic growth of 8.1%.

"Our second quarter performance reaffirms First Watch as one of the most consistent, best-performing concepts in the restaurant industry,” First Watch President and CEO Chris Tomasso says in a statement, where the company — take that, recession — also raised its guidance for the rest of 2022.

One clear theme in downturn conversations with executives? Most seem to believe Florida, with a population surge showing few signs of a pullback, will be able to withstand either a brief or a prolonged downturn, whatever it’s called, better than most other big states.

On that, Gulf Coast Builders Xchange Executive Director Mary Dougherty echoes several others in saying “thank God Ron DeSantis” kept the state open early in the pandemic, and has continued hammering that theme. That’s especially true in construction — long a jobs and economic multiplier machine. “I think Florida,” Dougherty says, “will be really be an outlier if we’re going to a recession.”

 

Lots of questions

The what to do “if” we’re in a recession question leads to, or overlooks, an equally important question: are we even in a recession?

Some of the data, debated nationally with a heavy political slant on bath sides, points to an overwhelming yes, a recession is underway. The biggest check for that box comes from the U.S. gross domestic product, which fell in the first two quarters of 2022: 1.6% in he first quarter and 0.9% in the second quarter, the Bureau of Economic Analysis reported Aug. 1. The last time the GDP fell two straight quarters was 2009 — also a recession.

Read more: No end in sight for rising food prices, consumers seek alternative

Other statistics, statements and signs of a recession, or at least a significant downturn, include:

  • Nearly eight in 10 CEOs, in a global summer mid-year survey from New York-based business research nonprofit The Conference Board, expect a recession in their primary region of operation within the next 12 to 18 months — or believe one is already underway.
  • Prominent Wall Street investor Cathie Wood, who recently relocated the headquarters for her firm, ARK Invest, from New York to St. Petersburg, says a recession is already here. Speaking during her monthly webinar released Aug. 9, Wood cites not only the negative back-to-back quarters of declining GDP, but three consecutive months of declines in leading indicators, such as household employment and unemployment insurance. It’s not all bad. The recession, she projects, could be over by 2023, Wood said on the webinar. “We think we’re in a pretty significant inventory recession, but we don’t think it will be anything like the systemic recession and financial crisis of ‘08-‘09,” Wood said on the webcast. “It will be what economists used to call a garden variety recession.”
  • The National Federation of Independent Business’ Small Business Optimism Index remains in a sinkhole. While it rose 0.4 points in July to 89.9, that was also the sixth consecutive month below the 48-year average of 98. Also, 37% of small business owners reported inflation was their single most important problem in operating their business — an increase of three points from June and the highest level since the fourth quarter of 1979.

“The only bright spot seems to be (small business owners) enthusiasm for hiring more workers, even as expensive as they have become, sales remain supportive of hiring,” the report states. “Job openings and their plans to fill them are historically very high. But everything else is down, capital spending plans, inventory investment plans, expected real sales way down, the environment for expanding negative, interest rates rising, it doesn’t add up to an optimistic outlook. As we move into the second half of 2022, owners will continue to manage their firms into our very uncertain future.”

 

Rough road ahead

Yet most executives interviewed by the Business Observer, maybe if only to avoid a self-fulfilling prophecy, say Florida isn’t in a recession. Or if it is, due to some positive metrics, the state, in general, will handle it with aplomb.

That said, reports on the recent past and an outlook from what’s next, from officials who work with businesses and the executives themselves, aren’t exactly boom-time cheery. A sampling:

Steve Cona with Associated Builders and Contractors’ Florida Gulf Coast chapter says he has worries about the economy in 2023. (File photo)

Steve Cona III, president and CEO of Associated Builders and Contractors’ Florida Gulf Coast chapter: “We asked our contractors what their companies’ profit margins will be a year from now, and the majority said the same or lower. This is telling because last year the majority predicted higher profit margins. We are starting to see contractor confidence decrease a bit. Supply chain and lack of skilled labor are by far the biggest concerns for contractors.”

“I started at ABC during the last recession and this downturn looks completely different,” he adds. “We are still seeing growth with healthy backlogs, stable profit margins and low unemployment numbers.”

“I think Florida’s construction firms are going to make it through 2022 with growth and stable profit margins,” Cona adds, “but I have concerns about 2023. I think we are already seeing our peak starting to level out and eventually the lack of skilled labor is going to catch up with us.”

Brandon Box with Cogent Bank says people are still moving to Florida. (Courtesy photo)

Brandon Box, Southwest Florida Market President, Cogent Bank: While Box, a veteran of several Southwest Florida banks, stresses “we aren’t at that point” when asked about a recession, he has noticed some deals, maybe 10% to 20%, are being “sidelined” due to economic worries. “There are deals still happening but people are putting much more paper out on them,” he says. “They are stress-testing it more being a little bit more conservative.”

He adds that funding hasn’t dried up, both from friends and family and institutional — a good sign. “There’s still a ton of equity in the marketplace and that’s not something you saw in the last downturn. It’s not a credit crisis like it was 15 years ago.”

Another positive sign is Box says the move-to-Florida spigot hasn’t been turned off, or even cooled down for the most part. “Every week we get calls from New York, Boston, Green Bay,” he says. “People are still moving here and buying businesses here.”

 

Forward thinking

Caroline Beasley says the Beasley Media Group began preparing for a recession back in March. (Courtesy photo.)

Caroline Beasley, CEO Beasley Media Group: At the helm of the Naples-based publicly traded firm, with 61 stations in 14 markets, Beasley says the company started planning for a recession back in early March. That was after Russia invaded Ukraine and gasoline prices shot up. The company, with $241.1 million in revenue in 2021, makes most of its money of selling advertising time. That kind of marketing is, despite many consultants saying not to, is sometimes the first to go in a recession.

Read more: Are the region's biggest companies conserving enough cash for a recession? 

“We started seeing a slowdown in June,” Beasley says, of advertising revenue. And the trend has continued. “The revenue is not growing at the same pace it was in April and May.”

The biggest impact on the slowdown has come from the group’s national customers, Beasley adds. The local and direct customers aren’t being as impacted by the economy as the national customers are, but Beasley adds that isn’t unusual. 

The months of September and October look a little better in terms of advertising revenue, she says, but that’s also when it brings in the bulk of its political advertising money. 

The company, while it’s been on mission to diversify revenue streams for several years, including a move into e-sports, is trudging ahead as if there’s a recession — just like others. That means expense cuts over the past six months to prepare for the current and fourth quarter, Beasley says, including layoffs. Founded in 1961 by Caroline Beasley’s father, George Beasley, the firm has some 800 employees today.

Count Caroline Beasley as one of the executives who believes the recession is already underway — one she hopes is shorter than the last one. She drives changes at the company, in digital and other areas, with an eye toward having a lot more tomorrows, not one period in time.

“Really, the big picture is to get through the recession,” she says. “As a leader, I have to stay focused on not doing anything that’s going to hurt the company in the long-term.”

 

Brian Hartz and Amanda Postma contributed to this report.

 

 

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