| NEW YORK, July 19
NEW YORK, July 19 U.S. small business owners
plan for growth this year but are closely tracking recent
interest rate rises and any impact they might have on their
business and customers, according to a spot survey of firms in
the New York region.
Rates have risen sharply over the last two months, leaving
benchmark 10-year Treasury yields about a percentage point above
mid-May levels and near the highest levels since August 2011.
If those higher rates hurt consumers, that would "ultimately
have a net effect on us," says Michael Muzyk, president of
Bronx, N.Y.-based Baldor Specialty Foods.
Baldor senses changes to the economy because it supplies
produce to restaurants and hotels in New York City. If the
economy weakens, New Yorkers cut back on restaurant spending.
Meanwhile, slow U.S. or global growth can dampen the tourism
that fuels New York's hotel business.
Baldor has annual revenue above $200 million, over 800
employees, and 200 trucks delivering produce, but the recent
rise in rates won't have a direct impact because of the firm's
strong cash position, Muzyk said. The company also has access to
a credit line should it want to invest or expand, he said.
The recent rise in interest rates - and the parallel rise in
mortgage rates - is of more concern to Wheatfield, New
York-based Calamar, a real estate firm involved in financing,
construction and property management.
Already, with mortgage rates at two-year highs, the Mortgage
Bankers Association's seasonally adjusted index of mortgage
application activity fell 2.6 percent in the week ended July 12.
Calamar runs on a 15-year strategic plan, says its chairman
and chief executive officer, Kenneth Franasiak.
"We saw the peak in 2007. We went to all cash and from that
point, we've re-deployed into the market again," Franasiak said.
"We see a continuation of slow economic growth and our customers
and clients share those views."
Many economists have come around to that view as well with
some Q2 GDP growth estimates as low as 0.3 percent following
growth of just 1.8 percent in the first quarter and barely
positive growth of 0.4 percent in the quarter before that.
The rise in interest rates has not yet affected business at
Ring's End, a Darien, Connecticut-based retail lumber, millwork
and building specialty company, but since the firm's business is
closely tied to housing and construction, its president and
chief executive officer David Campbell is watching to see
whether rates stabilize or move higher.
"We still have historically low rates, but if they keep
going up, it could slow things down a bit," he said.
The rise in interest rates could actually spur some
transactions if people "want to lock in" a mortgage before the
rates go even higher, Campbell noted.
Meanwhile, rising home prices has encouraged people to begin
spending money on home maintenance and improvement projects they
might have deferred, he said.
"We anticipate the economy, and business, will gradually
get better, but we're not looking for any boom," Campbell said.
The recent rise in rates is "not a great thing for small
businesses, but we've had a nice long run of low interest
rates," notes Gale Epstein, president and creative director of
Hanky Panky, which manufactures lingerie in the New York City
boroughs of Brooklyn and Queens.
If the recent rise in interest rates hurts consumers, her
firm could feel it later this year, Epstein said.
The Thomson Reuters/University of Michigan survey showed
Americans in early July were more optimistic about current
economic conditions than they had been in six years, but had
lost some confidence in the recovery's prospects.
FISCAL POLICY MATTERS
Besides interest rates, small businesses are also focused on
Federal budget sequestration cuts that occurred this year
drastically hurt DHS Systems LLC, an Orangeburg, N.Y., company
whose biggest product is standard army medium and large command
centers - shelters with a trailer that carries a generator and
all the equipment a mobile facility requires.
"Our revenues dropped from $210 million to about $110
million," said A. John Prusmack, DHS Systems' president and
chief executive officer who started the company in 1984. "That
means you have to lay off a lot of people. We had about 500
employees; now we have 180-185. When that happens, you lose a
lot of your expertise, your production talent."
DHS Systems is in the process of moving to Huntsville,
Alabama, where Prusmack believes elected representatives will be
more responsive to defense contractors.
Despite the challenges, however, the owners see some upside
potential for their businesses.
"Hope is not a business plan, but a lot of cash is on the
sidelines and as people begin to feel more confident, they are
doing things they weren't doing 24 months ago or even 12 months
ago. They are hiring and increasing capital spending," Franasiak
said. "But it takes time. This is a marathon, not a sprint."