By ARNOLD S. PLATOU
4:04 PM EST, January 5, 2013
Washington County’s economy took baby steps forward in 2012, but the path has been bumpy and tremendous cracks are looming, business leaders said last month.
“We’re seeing little incremental improvements,” said Peggy Bushey, president of Cavetown Planing Mill Co. and Cavco Homes. “It’s a little better than 2011, a little bit better than 2010. ... But there’s still some scary things out there.”
A few miles away, on the south side of Hagerstown, Weiss Bros. is having an up year — its second in a row — and President Richard Weiss is optimistic, but guardedly so.
“Everything I’ve seen (suggests that) next year, the economy should be better, unemployment should go down, housing could come back. ... We could have a boom next year, but I wouldn’t want to bet on it. I think everybody in business is going to tell you the same — we’re cautiously optimistic.”
And yet for some local business owners, there was little, if anything, in 2012 to raise their hopes for 2013.
“It’s pretty stagnant, I think,” said John Walla, who opened his second Black Eyed Susan restaurant in Hagerstown this past spring, but since has closed one of them.
The economy has gone “from one crisis to the next,” Walla said. “Consumers don’t know what to do. Just hold onto their money and not go out to eat or do other things as much as they used to.”
Early indicators good
Coming off at least four years of hard recession, early 2012 had the look of the dawn of new economic hope.
By the numbers:
• The county’s unemployment rate improved. The rate, which jumped as high as 12.4 percent in February 2010, fell back into single digits in late 2011 and stayed there every month of 2012. It had sunk to 8.1 percent by November, the latest monthly rate reported.
• Home prices rose. The prices, which crested at a median of $231,750 in 2006 and bottomed at $138,000 in 2011, slowly began increasing in late 2011. In 2012, the median halted its monthly climb over the year-ago price only once from January through August.
• People began spending more. After years of recessionary decline, spending levels began a steady rise in late 2011 over the year-ago mark. And from January through March 2012, the solid gains continued.
In April, Walla opened his second restaurant, calling it Black Eyed Susan North. His first, which he now called Black Eyed Susan South, opened in early 2008 in what had been a small sub shop at 17102 Virginia Ave. that Walla bought in 2003.
Black Eyed Susan’s Virginia Avenue location had done so well since 2008 that its success became a problem: It was attracting more diners than Walla could seat on weekends and it didn’t have enough parking, he said.
So Walla added the second restaurant, leasing space in the North Pointe shopping center on Hagerstown’s northern edge.
By May, when the newspaper interviewed Weiss, president of the food-service products supply company, and Bushey, president of the lumber, door, window and building supply company, the economy still was “moving in the right direction,” as Bushey said then.
“I would think we’re past the bottom and on the way up,” Weiss said in May. “But it’s not the typical recovery from a recession, and it may take years until we’re back up to where we were.”
In July, when the newspaper first talked to Walla and to Mortaza “Mort” Behpouri, the economy seemed to be creating fresh opportunity.
A Hagerstown businessman, Behpouri owned a Subway restaurant here for 12 years. In 2008, he sold the Subway and bought Railroad Junction Restaurant at 808 Noland Drive in Hagerstown’s South End.
Early this past summer, Behpouri received a telephone call. The caller was the man who bought the former Burhans Station restaurant at a public auction in 2009 at a price the auctioneer said was “a steal.” The successful bidder wanted to sell because the Vito’s restaurant he opened in about 2010 no longer was in business.
Behpouri bought the 301-307 S. Burhans Blvd. property, saying he hoped to open a new restaurant there before year’s end. He said he would operate both it and Railroad Junction before deciding whether to cut back to just one.
“Life is challenging,” Behpouri said in July. “So you got to challenge it.”
But by late December, Behpouri’s new restaurant still hadn’t opened and the building still sports the Vito’s name on its front awning. Behpouri didn’t return any of several messages the newspaper left asking for comment.
And in August, Walla closed Black Eyed Susan South and put the property up for sale.
While the South restaurant still was doing “all right,” Walla said, his main reason for closing it was his own time commitment. It was “too much to run two places. I’d just rather focus my attention on one location.”
He said he chose to keep the northern location because it is a “much larger restaurant and (at the southern site), I had no room to expand.”
The decision forced him to lay off about eight employees, while bringing the others to work at the northern restaurant, he said. In all, it now has about 20 employees, he said.
Signs of slippage
Through August, consumer spending here continued to rise. Every month’s total receipts were higher than in the same month of 2011.
But April and June’s gains were so thin, it’s questionable now whether they weren’t actually the first new signs of slippage. The other months’ gains were better, but not as strong a margin as earlier in the year, according to the newspaper’s review of the sales tax data.
Then, in September, spending fell. The total dropped from $135.0 million in September 2011 to $132.7 million in September 2012.
In October, the result was almost too close to call. Consumers spent $128.1 million here in October 2011, compared to $128.9 million in October 2012.
When the numbers are so close, the significance is harder to interpret, especially because Internet sales are becoming a bigger factor in the marketplace. The impact of Internet sales can’t really be measured by sales tax data because, Maryland officials have said, people seldom pay sales taxes on such purchases.
Nonetheless, the up-and-down rise in consumer spending shows up in the financial books at Weiss Bros., its president said.
The company, which has about 43 employees and is in its 74th year, supplies food-service products to about 500 companies in the region. Among its products are paper and plastic cups and plastic utensils; packaging such as shrink wrap; safety products such as glasses and hairnets; and janitorial supplies such as cleaning towels and tissues.
“We’ve had a 4 1/2 percent increase in sales this year, but it’s been up and down,” Weiss said. “My August was better (than August 2011). My September was significantly less, but I made it up in October, which was better. And my November was about flat.”
Such monthly swings usually are tied to the amounts of hiring and layoffs by his business customers.
“If I’m selling to a factory and they lay off workers, they’re using less toilet paper, less paper towels,” Weiss said.
But with the county’s jobless rate on a slow track back toward health, “slowly but surely, my business has been getting better,” he said. “This year has been another up year for us. It’s OK, but it’s not great.”
So, why the ups and downs in his sales?
Weiss isn’t the only company experiencing such uncertainty.
To hear what’s going on statewide, Maryland’s comptroller of the treasury held an Economic Advisory Forum in November.
The event drew business leaders from throughout the state, Comptroller Peter Franchot said. It’s his office that receives the sales tax collections every month from businesses statewide.
“The private sector is telling us that the underlying economic insecurity out there is causing unpredictable ups and downs from month to month,” Franchot said.
“This prevents businesses from being able to confidently plan ahead, which means they’re not hiring new employees, promoting from within or making investments in their company’s future,” he said.
The uncertainty is being fueled largely by unresolved national and international issues, according to business leaders in the Tri-State area.
“It’s such a fragile global economy right now and it’s fragile-looking at (whatever may come nationally in) the tax policy,” said L. Michael Ross, who has been president of the Franklin County (Pa.) Area Development Corp. for 17 years.
Based in Chambersburg, Pa., the nonprofit organization works to keep existing businesses in the area and to recruit other businesses.
“I think in talking with local employers right now, there is optimism (about the economy), but not confidence,” Ross said. “I think that is what we’re seeing” with the economic ups and downs.
Real estate ups and downs
Ross said several new business projects are under way or have been announced in 2012 in Franklin County, with some of the most significant planned in the area off Interstate 81 just north of Washington County.
“The Exit 3 interchange in Greencastle (Pa.), which is like three miles across the line, (is drawing) $175 million worth of investment,” Ross said.
Projects include Norfolk Southern railroad’s nearly $95 million facility, where hundreds of trucks will carry freight in and out every day. Other projects include a new distribution center and a manufacturing plant, he said.
In Washington County, building permits show the year’s new construction has included some medical office buildings, as well as new restaurants and stores.
This month, New England Motor Freight moved into its new trucking terminal in Halfway. And FedEx Ground said it is going to begin building a major addition to its package distribution center nearby, starting early in 2013 and finishing by fall 2014.
But overall, Washington County didn’t see any increase in 2012 in the levels of construction activity of either commercial or residential buildings, according to the newspaper’s review of building permit records.
And the county’s real estate market has started its own series of ups and downs.
After rising in June, July and August over the monthly year-ago levels, the market fell in September and October, according to Metropolitan Regional Information Systems Inc., which tracks sales in communities in several states.
Then in November, the market shot up 42 percent to $16.3 million in sales, MRIS said. And in that month, too, the median price — after dropping in October — rose in November to $163,250.
The health insurance factor
The economic turbulence is compounded by a sudden escalation in health insurance premiums, Bushey said.
In addition to Cavetown Planing Mill and Cavco Homes, her businesses include N.Z. Cramer, a hardware store in Woodsboro, Md. In all, the three businesses have about 65 employees, Bushey said.
Her companies have provided health insurance for employees for many years.
Now, she said, the cost of doing that seems to be jumping as insurers anticipate the expenses they will face under the so-called Obamacare.
The health insurance reform program, which Obama signed into law in 2010, is to roll out over four years. It is designed to make affordable insurance available to millions of uninsured Americans and small businesses
“Our increase (in premiums) this year was upwards of 40 percent. And we have what I would consider to be not very good insurance, but it was the best I could find for us,” Bushey said.
“What is going to happen? That is one of my very biggest concerns,” she said.
“We have never supplied health insurance because we had to. We have supplied it because that is what we knew our employees needed. And so, that is something I want to keep,” she said.
But with the new cost increase, she said, “this is some scary stuff.”
Weiss and Ross said the combination of the uncertainty of the economy and of Obamacare is causing many to hold off on new business projects.
“What caused the (local) economy to flat-line in the last part of the year, I think, is the uncertainty,” Ross said. Businesses are “not certain what the tax rates are going to be and what the health costs are going to be. There’s still a lot of cash sitting on the sidelines, waiting to come into the economy.”
As they would before any new year, Weiss said, businesses and customers are “making plans, but they’re not fulfilling their plan until they see what taxes are going to be, what Obamacare is going to bring.
“I don’t really understand the implications of Obamacare. Those decisions (how to adjust to it) may have to be made next year.”
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