Election years typically come with a healthy dose of uncertainty – never a good thing in the small-business world – as Americans choose between often divergent economic policies that will guide the country for the next four years.
The 2016 campaign was no different, and a national survey from Bank of America Corp. released on Nov. 15 showed small-business owners’ confidence that economic conditions are improving has eroded sharply from past years.
In Los Angeles, however, those numbers were markedly better, according to Troy Bosch, who leads the bank’s small-business efforts for Los Angeles. Of L.A.-based respondents, such as Richard Pyles of skateboard maker Made in Mars, 47 percent expressed confidence that the economy would improve over the next 12 months, compared with only 31 percent of respondents nationally. The broader number represents a 25 percent drop compared with the 2015 report.
“We were very pleased to see the optimism from Los Angeles small businesses,” Bosch said.”
However, there are mitigating factors at play in terms of the region’s rosy outlook.
Because the survey was conducted before Nov. 8, Donald Trump’s victory was not factored into the responses of L.A. small-business owners. While that’s true of all respondents, there are some concerns about how his presidency could impact the Southern California economy despite a general perception that the president-elect will carry out business-friendly policies.
Several small-business owners who participated in the Bank of America survey said in follow-up interviews that Trump’s lack of explicit policy plans concerning health care and cross-border trade – particularly with China – are top of mind.
“Any time you have a protectionist macroeconomic policy there’s concern,” said Pyles, president and chief creative officer of Made in Mars Inc. of City of Industry. “It’s not necessarily a product of Trump, but we are looking to control our production and supply chains.”
Pyles said prioritizing proactive strategic planning is important for his company, which manufactures skateboard decks in Los Angeles but sources many other components from factories in China and other countries. While he remains concerned about potential supply chain disturbances, Pyles said he’s not dealing with any immediate challenges.
“We are prepared for disruption, but don’t see it right on the horizon,” he said.
Healthy problem
In fact, one of the reasons for the supply chain concern is that Made in Mars’ order volume is expanding. The company expects to build on the $7 million in revenue it generated last year by the end of 2016, with additional growth projected in 2017.
However, rising health care premiums could squeeze the company’s profits and those of other small businesses. While Pyles said Made in Mars’ health care expenses had gone up during the last two years under the Affordable Care Act, the absence of details surrounding Trump’s plan to reduce those rising costs has left him feeling uncertain.
“Health care is one of the things that has been a concern,” Pyles said. “But it’s really hard to say whether the election result is going to help or hurt.”
Other small-business owners were openly hopeful that Trump will be able to lower the price of health care coverage.
“I’m an advocate for taking care of my employees – I want to give them good health care – but premiums are still high,” said Faris Naman, chief executive of Pasadena electrical contracting outfit Golden Phoenix Construction Co. Inc. “I hope Trump comes up with a plan to lower those costs.”
That would help Naman’s construction business, which he said has seen revenue jump from $3.2 million in 2015 to a projected $5.3 million this year. The growth has enabled him to hire additional employees, which, while necessary, has also meant a bigger health care bill.
Those worries match up with a broader national trend observed in the Bank of America study: Health care represents the No. 1 concern for small-business owners in the United States, with more than 75 percent of respondents listing it as one of their primary headaches.
Economist Christopher Thornberg of Century City’s Beacon Economics said small-business owners’ wishes for decreased health care costs would likely go unfulfilled.
“The only way their health care costs get reduced is if someone else pays more,” Thornberg said. “Either workers pay more out of their pocket or the government increases its spending.”
Thornberg said the real issue, however, wasn’t who pays for health care, but the services paid for.
“Until we grow up and acknowledge that there are clearly medical conditions we shouldn’t pay for, nothing is going to change,” he said. “Anytime you try and put even the most basic of limitations on service, people lose their minds.”
More broadly, Bank of America’s Bosch said that while the L.A. small-business community certainly had other concerns heading into the new year – interest rates and consumer confidence, among them – he was impressed by the bank’s clientele in the region.
“When you look at the marketplace of small owners, they are a resilient bunch,” Bosch said. “It’s a very self-confident group that believes they can overcome anything in their path. They’re not changing any big strategies.”
