SunTrust Tampa Bay market leader: Tariffs, labor costs cut into business optimism

Worries about rising business costs showed up in the recent Business Pulse survey by SunTrust.

Tim Schar, Tampa Bay market president, SunTrust

While most U.S. business leaders feel confident about the outlook for their own companies, they have growing concerns about the broader national and global economy, said Tim Schar, Tampa Bay market president for SunTrust Banks (NYSE: STI), one of the largest banks in the area.

The dip in optimism came despite corporate tax cuts, a stock market that’s done well and continued low unemployment since a similar survey was conducted last year.

“Now, everyone’s worried about what’s next,” Schar said. “The thing that surprised me is that people are concerned about everything under the sun. Will tax reform be rolled back, will there be war with North Korea, will there be a border wall, is there going to be a peak in the economy and a recession on the other side of that peak?”

About 56 percent of the respondents in this year’s survey said the U.S. economic outlook is strong, down from 62 percent in last year’s survey. There was an even larger decline in the number of respondents who say the global economy is strong — 52 percent agree with that now, down from 62 percent last year.

Nearly three-quarters of the business leaders surveyed, or 73 percent, feel good about the outlook for their own firms, down from 81 percent in the previous survey.

“People have to pay more for labor and some of the tariffs have caused them to have to pay more for raw materials, and they don’t feel in control about their operating costs,” Schar said.

The local economy remains strong, Schar said, citing housing and commercial building trends, a deliberate focus on industry diversification by economic developers and continued population gains from people moving to Florida and to Tampa Bay.

“I feel like regionally we have a positive momentum from an economic perspective, from a business growth perspective and certainly from a population trend perspective,” Schar said.

 Competing for talent

An increased emphasis on technology, particularly to combat potential cybercrime, is driving a lot of decisions about hiring and retaining employees. The SunTrust survey found companies are taking several steps to compete for talent.

About half the business owners surveyed think a recession might be in the future.

“They learned last time that access to capital is important,” Schar said.

Half of the business leaders surveyed say they’ve invested excess cash from federal tax reform back into their business.  About 37 percent of the survey respondents plan to use excess cash to pay down debt, and about 35 percent plan to build up cash reserves.

SunTrust has been able to pay more on deposits, because of rising interest rates, so it’s been able to offer short-term investments with attractive returns as one way to put cash to work. The bank also has seen an uptick in interest in strategies it offers to improve working capital and generate more cash, Schar said.

About one-third of the business owners are considering mergers and acquisitions, either a sale of their own company or buying another firm.

One trend Schar is seeing is interest in private equity as an alternative to a business owner using their own money to grow their company.

“If you are a small business owner and you have personal guarantees, you are putting a lot of risk on a business that you may have run for 20 years.  If you make a leveraged acquisition, that risk is all on you,” Schar said. “But we’re seeing folks partner with private equity. There’s so much availability of capital and we’re seeing folks sniff around that.”

Decision-makers representing more than 500 U.S. small and mid-size businesses participated in the SunTrust/Radius Global Market Research survey conducted Jan. 22-Feb. 1 and released earlier this month.