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Economy softening in SLO

By   /   Friday, August 15th, 2008  /   Comments Off on Economy softening in SLO

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The San Luis Obispo Economic Vitality Corp. has released the results of a recent county business survey, showing that while a majority of companies remain strong, sales, housing and recruitment are small but growing issues.

The results, said EVC President and Chief Executive Officer Mike Manchak, reflect state and national economic trends.

While 65 percent of respondents reported increased or unchanged revenues compared to a year ago, 25 percent said revenues had dropped.

In 2007, only 8 percent of respondents said their sales had decreased. Atascadero, Paso Robles and San Luis Obispo companies made up the bulk of business reporting dropping sales figures, the report said.

In addition, 26 percent of companies reported a reduction in workforce this year, compared to just 3 percent in 2007.

Patrick Mayeda of Productive Impacts LLC, who conducted and prepared the survey for the EVC, said because of the slowing economy, he expected to see a drop in revenues, but was surprised to see such a drastic increase in companies that reported slowing sales.

The number of responses to the June survey increased 72 percent over last year, reaching 300 businesses, reflecting the EVC’s effort to reach a broader sampling of businesses, based on both geography and industry.

Companies in the professional services category made up 26 percent of the respondents, while the retail sector respondents bumped up 8 points to make up 18 percent of the total surveyed. At 9.2 percent, technology industry participants were the third largest group of survey respondents.

Manchak said “new economy” companies, such as technology companies, that operate within the county but don’t have customers in the region, have been performing well, trying to expand, and attempting to attract new employees to the area.

Fifty-eight percent of companies said their primary market and customers are inside San Luis Obispo County, but the survey showed companies are increasing participation in international business, which, until this year, seemed to be paying off.

“All these companies are starting to realize they have to go outside of the county to do business, to continue to grow sales and revenues,” Mayeda said.

Companies that said they do business outside of the county reported increased growth over the past few years. However, while 19 percent of companies involved in import and export said they planned to expand facilities to accommodate their growth, that number dropped from 26 percent last year.

Mayeda said he still feels the figure reflects companies’ efforts to expand amid a struggling economic environment.

“These companies are not just sitting back and saying they’re going to wait things out,” Mayeda said. “They’re looking at what they’re going to do next.”

Of the 31 percent of companies that said they were seeking investment capital, 62 percent were considering a bank loan; 24 percent were hoping for angel investors and 16 percent wanted venture capital. About a third of those seeking capital were targeting an amount between $100,000 and $900,000.

“That’s a pretty striking number,” said Mayeda. “San Luis Obispo being a place that has lots of very small companies, you would expect them to only be looking for less than $100,000 to kick themselves off, but these companies are really serious about growing and going to that next level.”

Manchak said he has seen a dramatic increase in loan requests with the EVC, demonstrating businesses commitment to growth plans despite a headwind.
“I’m seeing that in a number of business loans. In some cases, we’re breaking weekly or monthly records,” Manchak said.

A majority of respondents expect a continued slowdown, the EVC report said, with about a quarter planning significant changes in their services, product lines or business models.

Among the biggest challenges respondents face are workforce housing, health insurance, employee retention and workers’ compensation insurance.

Despite the softening housing market, 55 percent of respondents said the cost of housing was their top challenge. The second greatest economic challenge was local economic conditions. Indicating a concern over rising fuel costs, the report said, more companies said freight services had become a challenge.

While survey results showed employee recruitment was another major concern for businesses, 40 percent said they had no recruitment problems this year, up from 27 percent a year ago. Still, a large portion of respondents said recruitment of managerial staff was “most difficult” and executives and technical staff such as engineers and scientists were “very difficult” to recruit.

Skilled labor moved into second place as the “most difficult” employees to recruit, with another 26 percent of respondents saying it was a “difficult” category to recruit.

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