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Survey finds some positives about local economyAug 29, 2010 (Richmond Times-Dispatch - McClatchy-Tribune Information Services via COMTEX) -- RICHMOND, Va. -- Even with all the bad news about the economy's direction, Hans de Koning remains optimistic about his business. He is president and founder of Flexicell Inc., a Hanover County company that designs and builds robotic systems sold to manufacturing companies to automate their processes, particularly in the food industry. "Our customers in the food industry have seen an increase in pre-packed foods sold in supermarkets," de Koning said. To meet demand, he said the company has added workers since early 2009, growing from 35 to about 50 employees. Flexicell falls among the 26 percent of local companies interviewed by the Greater Richmond Partnership, a local economic development group. The companies said they expected growth in the coming year, even as the economy continues to pose serious challenges. The partnership, an economic development organization for the city of Richmond and Chesterfield, Hanover and Henrico counties, worked with local economic development agencies, universities and other business organizations to conduct face-to-face interviews with 533 established businesses in the area. The results of the "Business First" survey, expected to be released tomorrow, offer some reasons for optimism about the local economy. For example, 101 of the firms that were interviewed said they expected to expand within a year, creating about 1,388 jobs and investing $136 million. But that is still fewer jobs than the region has lost during the downturn. The area lost two of its biggest employers -- Qimonda and Circuit City Stores Inc. -- to bankruptcies, accounting for the loss of 3,950 full-time equivalent jobs last year. Yet the survey also notes that businesses continue to face problems such as access to credit and capital. "Growing firms are finding it more difficult and expensive to fund new growth opportunities," the report says. "Start-ups and early stage firms have commented about the lack of venture capital and mezzanine financing." Why credit has remained tight is a matter of some speculation, said Tom Arnold, a professor of finance at the University of Richmond. "We see production coming back, and we see the cash in firms starting to get better, but credit is just as tight as it was back in 2008 and that does not seem to make sense," he said. "It is a new sort of recession. Whereas usually you can sort of pump the economy with some money and it creates jobs and everything follows from that, here we have pumped the economy with the money but the gatekeepers are not distributing it." In part, he thinks that might be because interest rates are so low, making loans unappealing now. Lenders also seem to be making judgments now based more on riskiness of the project rather than the creditworthiness of the business seeking the loan. The survey also found about 73 percent of the businesses interviewed were projecting an increase in sales in the next 12 months. However, most of those were expecting modest growth of less than 10 percent. More than 80 people conducted face-to-face interviews with business owners and managers in the area from July 2009 to June 30 of this year. The companies interviewed employ a total of about 21,000 people in the area in 20 industry sectors, with the average size about 40 employees. The survey results are not scientific because the sample size is too small, but the research is important because 60 percent to 80 percent of all local economic activity -- new jobs and new investments -- is generated by the base of existing businesses, said Sara J. Dunnigan, senior vice president for existing business services at the Greater Richmond Partnership. "Our goal is not just to collect data," she said. "We are working to build a deeper relationship with companies here in the region, so we can understand where they are and where they are headed." As the economy has struggled, Dunnigan said retention of existing jobs has become a more important element of the Business First program, which was started four years ago to help established firms grow in the area. The Greater Richmond Partnership said follow-up assistance by local economic development officials with some of the companies that were interviewed has already helped to create or retain 767 jobs. The survey reflects the impact of the economic downturn on sales. About 37 percent of the businesses interviewed said their sales rose in the prior year, but a significant 32 percent reported a decline. In comparison, about 45 percent of the businesses in a survey conducted the previous year, from July 2008 to June 2009, reported positive sales growth, while 25 percent reported declining sales. The 2008-09 survey included more businesses, a total of 594 compared with 533 for the most recent one. The 2008-09 survey also identified 167 firms with plans to expand and create 1,600 jobs and make investments of more than $88 million. While more businesses have looked for federal government contracts as private sector opportunities slowed, companies in the survey also said reductions in state and local government budgets have affected business. The companies also reported that overall exports to foreign markets were down because of the global economic slowdown. The area still has fared better than many regions of the nation, said David Brat, an economics professor at Randolph-Macon College. The Richmond area's unemployment rate was 7.9 percent in June, lower than the national rate of 9.6 percent. The latest national economic news is not good, Brat said, noting a steep drop in home sales and a slowdown in manufacturing activity this summer. A double-dip recession might be avoided, but consumer confidence will be key, he said. "The consumer is 70 percent of the economy," he said. "Consumers are still paying down debt, and when you couple that with the national 9.5 percent unemployment rate, and a similar number who are nervous about losing their jobs, then you have a weak demand side." Contact John Reid Blackwell at (804) 775-8123 or [email protected]. To see more of the Richmond Times-Dispatch, or to subscribe to the newspaper, go to http://www.timesdispatch.com. Copyright (c) 2010, Richmond Times-Dispatch, Va. Distributed by McClatchy-Tribune Information Services. 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