Sunday, November 10, 2002

Companies: Outlook for economy is grim

54 of top 100 firms see no upturn through 2003

By Ken Alltucker
The Cincinnati Enquirer

More than half of Cincinnati's top 100 private firms expect the lackluster economy will extend into 2003 and beyond.

In the annual Greater Cincinnati 100 survey by the accounting firm Deloitte Touche and The Cincinnati Enquirer of the top 100 private companies, 54 forecast a flat economy over the next 18 months. Only three expect another recession. One-third (33) envision an expanding economy. Ten companies offered no prediction.

While many of the businesses are pessimistic about the economy's future, they are much more optimistic about their own results.

Forty-four 44 businesses reported profit increases in 2001 of at least 6 percent, while just 19 saw profits drop at least 6 percent. Even more (46) expect a stellar 2002, with profit growth exceeding 6 percent.

And that's one of the fundamental challenges of this economy, according to George Vredeveld, director of the Economics Center for Education & Research at the University of Cincinnati.

Businesses are reluctant to plunk down much on capital investments such as new equipment or office buildings.

"That has been a hallmark of this slow period," Dr. Vredeveld said. "It is fed by a slowdown in profits, but it's also fed by uncertainty."

Illustrating this cautious approach are the frugal spending plans adopted by many of Greater Cincinnati's top private firms. Only four of 100 companies surveyed expect to spend at least 6 percent of total revenues on either technology or research and development.

The top concern cited by most businesses (65) was the economy, followed by efficiency (34) and satisfying customers (32).

Pete W. Chronis, chief executive of Reece-Campbell Inc., a general contractor, isn't surprised by the overwhelming number of executives who don't see brighter days ahead for the economy.

Mr. Chronis' construction firm expects revenues to dip to about $60 million this year, compared with more than $90 million in each of the last two years. In 2000 and 2001, Reece-Campbell ranked No. 48 on the Greater Cincinnati 100.

Yet so far this year, it seems businesses aren't willing to spend money on new buildings.

"It's a lot more challenging than it was," Mr. Chronis said.

Because Reece-Campbell frequently builds for national chain retailers such as Kroger, Walgreen, Lowe's and Wal-Mart, his firm is in better shape than a lot of commercial contractors that build office buildings or warehouses - two construction sectors that have dried up.

For instance, Reece-Campbell is now building Wal-Mart stores in Kettering and Wilmington, Ohio. In Cincinnati, Reece-Campbell will tackle a 30,000-square-foot expansion of the Hyde Park Kroger.

Other tidbits from the survey:

Almost half (45) of all the top 100 firms are considering new ways to fund rising health-care expenses.

The vast majority (80) don't have an outside audit committee.

Only 14 companies think business ethics have improved over the last five years, and 30 say business ethics have declined.

Only 8 percent say quality of life in Greater Cincinnati has improved since the rioting of April 2001; 30 firms say quality of life has declined since then. The majority (51) says quality of life hasn't changed.


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