CBIA's latest annual survey of Connecticut businesses reveals growing concerns about the state's direction, with election-year calls for a renewed focus on economic growth and job creation.

Produced in conjunction with the accounting and business advisory firm Marcum LLP, the 2018 Survey of Connecticut Businesses coincides with what is arguably one of the most critical elections in the state's history.

Business survey: economic forecast
Source: 2018 Survey of Connecticut Businesses.

While 85% of surveyed business leaders forecast moderate to strong U.S. economic growth over the next 12 months, just 18% feel the same way about Connecticut's economy, with 52% expecting conditions to remain static.

A key factor behind that forecast? The survey also found 81% percent disapprove of the state legislature's handling of the economy and job creation, while 14% were neutral and just 5% approve.

"Unfortunately, business leaders feel not enough lawmakers take the state's challenges seriously," said CBIA president and CEO Joe Brennan.

"They want change and an aggressive, sustained focus on driving economic growth and job creation."

Top Priorities

With elections looming this fall, the survey asked business leaders what the top priorities should be for the state's next governor and General Assembly.

Over one-third (37%) favor cutting government spending and reforming the state employee retirement system, while 30% cited fixing the state's economy and business climate and 29% called for fiscal stability.

Connecticut business survey: legislative priorities
Source: 2018 Survey of Connecticut Businesses.

Lynn Fusco, president of New Haven-based construction firm Fusco Corporation, was among a panel of business leaders who discussed the results at the survey's release September 7 during The Connecticut Economy conference in Hartford.

"Connecticut's economic prospects won't improve until the state addresses its massive unfunded liabilities," she said.

"If we continue to kick the can down the road, businesses will pay dearly."

Strengths, Weaknesses

Michael Brooder, managing partner of Marcum LLP's Hartford office, noted businesses listed the state's proximity to customers, quality of life, skilled workforce, and access to major markets as its main advantages.

"Connecticut has a number of strengths, including its education system, location, and skilled workforce," he said.

"It's critically important that we address the state's challenges and protect those strengths."

Survey respondents have a pessimistic view of the state's business climate.

Sixty-one percent say Connecticut's business climate is declining, 26% believe it will remain static, 10% think it's improving, and 3% are unsure.

Connecticut business survey: legislative approval ratings
Source: 2018 Survey of Connecticut Businesses.

"I think the fact that Connecticut has lagged behind the nation, the huge fixed costs the state has, and the struggle to find a skilled workforce has really tempered their enthusiasm," Brennan said.

Donna Dellomo, chief financial officer of Stamford furniture maker LoveSac, said lawmakers must address the issues that leave Connecticut companies at a competitive disadvantage.

"There are many companies that don't need to be in Connecticut," she said.

"If we continue to lose our competitive advantages, then we risk losing them."

Growth Factors

Businesses were asked to list the top five factors hampering growth.

Business costs were cited by 64% of survey respondents, followed by the uncertainty and unpredictability of legislative decision-making, the state's high cost of living (49%), the tax burden (48%), and the availability of skilled workers (39%).

"The main thing state legislators need to address is the cost of doing business," Fusco told an audience of 300 business leaders.

If we continue to kick the can down the road, businesses will pay dearly.
— Fusco Corporation's Lynn Fusco
"If they can trim that, it will go a long way to helping us."

Only 11% of respondents believe state lawmakers understand the needs of their business and 71% say the state of Connecticut's economy will impact their vote this fall more than in previous elections.

"There's an opportunity to improve Connecticut's business climate," Traynor said. "And that really comes from the voters."

Business Growth

More than two-thirds (69%) of Connecticut companies reported profits in 2017, an increase of three percentage points over the previous year.

Eighteen percent reported losses, up marginally from 17% in 2016. The percentage of those breaking even fell four points to 13%.

Connecticut business survey panel discussion
Panel discussion: Marcum LLP's Michael Brooder, Fusco Corporation president Lynn Fusco, LoveSac CFO Donna Dellomo, and John Traynor from People's United.

Looking ahead, 73% forecast a profitable 2018, 19% expect to break even, and 8% predict losses.

Forty-three percent of survey respondents report sales growth, 44% say they are holding steady, and 13% note a decline in sales.

The survey reveals businesses are adapting and evolving to improve their competitiveness, expanding markets domestically and internationally, with many also shifting production out-of-state to escape Connecticut's high costs.

Shifting Production

For instance, 48% of companies introduced a new product or service in the past 12 months. Fifty-nine percent produced or made those products or services in Connecticut and 21% sited partial production in the state.

However, of the 40% planning on releasing a new product or service in the next 12 months, only 49% will site production in Connecticut. Eighteen percent plan partial production in state and 8% are unsure.

"Connecticut companies continue to see growth, which is a positive, but at a rate that is lower than the national average, and significantly lower than some of our direct neighbors," Brooder noted.

"Uncertainty at the state level plays a large part and will continue to leave the state in flux until it is corrected."

Uncertainty at the state level plays a large part and will continue to leave the state in flux.
— Marcum LLP's Michael Brooder
Forty-four percent of companies said federal tax reform will have a positive impact on their business, with 63% predicting it will help the U.S. economy.

Of those companies positively impacted by last year's tax overhaul, 48% increased employee salaries and/or benefits, 37% expanded their facilities, 31% increased hiring, and 26% added employee training programs.

More than half of those surveyed are worried about the potential negative impact of federal tariffs and trade disputes, with steel and aluminum levies driving heightened concern among manufacturers.

Workforce and Hiring

When it comes to hiring, 39% of businesses report their workforce is growing, 51% expect to maintain current employment levels, and 10% say their workforce will decline.

The shortage of skilled workers remains an issue, with many businesses shifting investment priorities to recruiting and training initiatives and away from capital expenditures and research and development.

"Our number one resource is our people," said Dellomo.

"How do we continue to invest in our associates and grow our company? Where does the money come from for that?"

Our number one resource is our people. How do we continue to invest in our associates and grow our company?
— LoveSac's Donna Dellomo
Traynor noted that despite the broad challenges companies face with finding skilled workers, Connecticut's post-recession job growth trails the region and nation.

“Connecticut is one of only three states that hasn't recovered all jobs lost in the recession," he said. "Massachusetts on the other hand has recovered over 350% of lost jobs.

"Massachusetts is a great model. Our greatest asset in New England is human capital—how do we harness that to build the businesses of the 21st century in Connecticut?"

Forty percent of surveyed companies reporting difficulty finding and retaining millennial employees, which places upward pressure on wages and benefits for many firms.

With millennials now the largest generation in today's workforce, a majority of companies are taking specific steps—including offering flexible schedules and engagement programs—to recruit and retain younger employees.