With the coronavirus pandemic wreaking havoc on the economy, a new survey of businesses in central Virginia shows a sudden and dramatic decline in sales, hiring and spending expectations for the next six months.
The survey, conducted every three months by the University of Richmond’s Robins School of Business and the Virginia Council of CEOs, found that fewer than 7% of chief executive officers leading small and medium-sized businesses in central Virginia expect sales, employment or capital spending to increase over the next six months.
That’s a dramatic turnaround from the survey conducted in early December, when optimism reigned. In December, more than 70% of CEOs were expecting to see sales increase over the next six months, and more than half were expecting to add jobs.
“We have never seen such a complete reversal in CEO sentiment” in the survey’s 10-year history, said Randy Raggio, who administers the survey as associate dean at UR’s Robins School of Business.
With the coronavirus forcing the closing of numerous businesses and mass layoffs, especially in retail, restaurants and hospitality, about 54% of the CEOs who responded to the survey are now expecting their employment to decline over the next six months, while 40% expect employment to remain flat. Only 6% expect an increase.
A whopping 87% said they expect to see sales decrease over the next six months.
Scot McRoberts, executive director of the Virginia Council of CEOs, said he has heard several small and medium-sized business owners describe the situation as “like someone turned off the faucet.”
“Suddenly last week, no one is calling, no one is buying. Some of these businesses will go under,” McRoberts said.
“I have heard from a couple of CEOs that they have already had to make layoffs,” McRoberts said. “The sense I get is everybody is doing their best to keep their people employed and paid.”
Still, claims for unemployment benefits have soared as businesses around the state have shuttered operations.
The Virginia Employment Commission said it received 46,277 jobless claims for the week ended March 21, an unprecedented 16-fold increase of 43,571 claims from the previous week’s level of 2,706.
In the Richmond region, jobless claims soared more than 2,480% last week compared with the previous week.
The most recent survey of local CEOs was conducted March 18 to March 23, and 101 CEOs in central Virginia responded, the largest number of respondents in the history of the survey.
CEOs from multiple industries responded, including construction, manufacturing, finance, insurance and retail. The average company in the survey had 57 employees and about $11 million in revenue for the most recent 12-month period.
Among those who participated was David Bender, owner of the Weeded! Lawn Care Service based in Henrico County. The company contracts with customers monthly to provide residential lawn mowing, weeding, pruning and mosquito-control services.
Now headed into the busiest time of year for his business, Bender said he has only heard from a few customers about canceling their contracts, though he is worried about a deeper economic contraction that could force customers to stop “elective services” such as lawn care.
The business employs about 25 people. Bender said he hired three people just two weeks ago.
“Under normal circumstances, I would have hired five or six new people,” he said.
Bender said: “My friend’s restaurant laid off 50 people, so the fact we could add three makes me feel good.”
“I am cognizant that the government might shut us down” eventually as a “nonessential” service, he continued. “Or, more likely, if we hit a huge economic recession where people don’t have money, then people will say, ‘This is a luxury item, so I am going to cut my own lawn.’”
“What is important to me is keeping my people working and employed,” Bender said. “I have employed my staff to work longer hours and work extra so we don’t have to hire more people, for fear that the more we hire, the more we’d have to lay off.”
“If needed, I will come out of my own pocket as best as I can to keep people employed,” he said.
Capital spending, which includes assets that businesses need to function such as buildings, equipment and technology, is expected to have a significant decline, survey respondents said.
Only 4% of the CEOs who responded to the most recent survey said they expect to increase capital spending in the next six months, compared with 42% in the December survey.
A drop-off in capital spending can ripple through the economy, hurting companies that are suppliers to other businesses, Raggio said.
“The long-term effect is that [capital spending] tends to not pick up for a while,” he said.
“You want to know that things are actually improving and it is not just a temporary bump before you start ramping up your investment again. It is going to be awhile before those companies that are supplying goods and services start to invest in capital.”
So far, Bender said his plans to open a new office and warehouse facility for his business in Hanover County are progressing.
As restaurants and retail stores close, the decline in sales can ripple back through the supply chain.
For instance, demand has dropped significantly for E&R Sales Inc., a Chesterfield County-based distributor of balloons and pens to retail stores nationwide. Specialty gift and card shops that buy the company’s products have closed or are having reduced hours and customer traffic, said CEO Elissa Mast.
Grocery stores are busy, but “consumers are in a rush to get to the toilet paper aisle so they aren’t focused in on buying balloons on these COVID-19 stocking trips,” Mast said.
While balloon sales are slow now, Mast said her industry anticipates a return to normal “sooner rather than later” because “millions of Americans are still celebrating birthdays at home.”
“Both my children had birthdays last week, and even though we would have normally gone out to dinner with a larger group to celebrate, we modified plans to a nice dinner with balloons and cake at home,” she said. “We also still expect families to buy graduation balloons as a demonstrative way to celebrate these seniors that lost the best part of their high school experience.”
The company employs 37 people and has established strict “social distancing” rules in the business, Mast said.
The survey of CEOs showed that nearly all are doing some kind of remote work along with additional sanitation and cleaning guidelines.
When asked what state and federal governments could do to help small businesses through the crisis, the consensus was that tax relief and low- or no-interest loans are required.
Virginia entered the sudden downturn with a strong economy and a tight labor market, said Sonya Waddell, a vice president and economist at the Federal Reserve Bank of Richmond.
The state’s unemployment rate was 2.6% in February, down from the 3% rate in the same month a year ago, according to the most recent U.S. Bureau of Labor Statistics data.
One of the key questions the Fed has been hearing from businesses is how they can keep employees on board while at the same time covering other costs such as rent and loan payments.
“How do you make the math work?” Waddell said. “That is what we are primarily hearing from firms across the service sector. Different ones are grappling with that. The finances or the budget for different firms is going to look different.”
McRoberts said he believes that many businesses will “find a way through this crisis by relying on reserves, scaling back, and innovating within the current environment.”