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Decon First: Proceed with caution, business owners

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Dr. John E. Stapleford

Dr. John E. Stapleford
Guest Columnist

By Kathy Canavan

There’s no recession in sight for Delaware, but businesses should prepare for an economic slowdown, according to Decon First, the Newark applied economics firm.

The report said the operative word for businesses is “caution.”

Economist John E. Stapleford recommended against expanding the workforce with full-time hires, due to the uncertainty around health-care costs and consumer spending. His quarterly report suggested management should prepare a phase schedule of employees who can be let go as business deteriorates.

Companies should be careful making future commitments to suppliers, especially on long-term purchase contracts, his report said. It said past-due accounts should be aggressively collected.

Businesses should pay more attention to cash and balance sheets, the report said. It recommended owners pay down debt, trim inventories and strengthen their cash positions. Credit terms should be reviewed to avoid liquidity problems.

Going forward, the report said companies will have to appeal to customers with vastly different income because Delaware’s income distribution is increasingly bifurcated. High-income residents are free to spend. Less educated residents are increasingly squeezed.

Also, businesses will have to adjust to the demands of the quickly increasing 55-and-older population.

Delaware has caught up with pre-recession levels of activity, but it is now entering a slow-down phase where growth will be equal or slightly below national averages, according to the report.

Stapleford said Delaware has several serious structural impediments to growth – high industrial electric rates, lower-quality public schools, no right-to-work laws, one of the highest corporate income tax rates in the nation, and high personal income tax rates.

Decon’s economic forecast for the end of 2016 is employment growth of about 1.3 percent.

Delaware’s top-performing industry is professional and business services, which accounts for 67 percent of the net gain in employment.

Hospitality and health care added jobs in the third quarter when compared to 2015. Retail and manufacturing lost jobs. Delaware now ranks No. 38 among the states in manufacturing jobs.

Health-care jobs have a stable growth rate of 4 percent, but Medicare and Medicaid spending comprise 86 percent of all the state’s health-care industry earnings.

Medicaid costs have become the single largest item in the state’s general fund budget, and economists said that cannot be sustained, so they said the future is “uncharted waters.”

A surge in employment over the past two years has led to a lower unemployment rate, but that included many temporary and part-time positions in restaurants, retail warehouse distribution and temporary help. Although these jobs brought down unemployment, they contributed to a moderation of wages and personal income.

Currently, transfer payments are the leading growth component in Delaware personal income – social security, disability payments, unemployment checks. These payments now make up 20 percent of Delaware’s personal income.

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