Bad news for those who are rooting against an economic recovery...
BAY STATE ECONOMY MAKING GAINS
by Robert Gavin, Globe Staff Date: August 17, 2003 Page: A1
An economic recovery may be taking shape in Massachusetts as companies in key sectors report rising sales, growing backlogs of orders, and even modest hiring.
Interviews with about two dozen executives from manufacturing, technology, telecommunications, and other companies indicate that the state's long-suffering economy is in the early stages of a turnaround. Manufacturers report they are accelerating production to catch up with backlogs. Technology companies say business has stabilized, with some reporting upswings. Employment agencies are seeing a growing demand for temporary help, a leading indicator for the job market.
Even the battered telecommunications sector, among the hardest hit by the bursting of 1990s bubble, is showing signs of life. For example, Sonus Networks, Inc. of Westford, which saw its revenue fall by nearly two-thirds last year and its peak workforce decline by about half, is hiring again after three consecutive quarters of double-digit revenue growth.
Hassan Ahmed, the CEO, said the company, which specializes in a technology that allows the Internet to carry telephone voice services, will add 10 jobs in the current quarter, and expects to hire at least 10 more in the next one.
Ahmed said that while 2002 was a very tough year, "now we're seeing a very nice pick-up."
Such anecdotal information adds to mounting evidence that after nearly two years of stumbling and stalling, the recovery is finally gaining traction. Nationally, positive economic reports have come one after another in recent weeks: monthly retail sales up in July, productivity surging in the second quarter, and manufacturing and service sectors expanding.
In Massachusetts, the labor market is stabilizing and beginning to add jobs, according to recent state employment reports.
Exports, a measure of the state's manufacturing strength, are running just below the record pace of 2000, surging by 14 percent in the first half of 2003, compared with the previous year.
In addition, the University of Massachusetts' index of leading indicators, which accurately predicted the state's slide into recession in 2001, is now pointing to a recovery, having stayed positive for four consecutive months.
To be sure, Massachusetts' economy remains fragile, and no one expects a repeat of the roaring 1990s. Business executives, who a year ago watched a nascent recovery peter out in the wake of corporate scandals and war preparations, remain cautious about expanding and hiring, and that means slow growth.
Still, executives note, they're at least talking about growth instead of further declines.
Last week's massive power outage, which largely bypassed Massachusetts, is unlikely to damage the prospects for a recovery, and might provide a boost, said John Bitner, chief economist at Eastern Investment Advisors, a unit of Eastern Bank in Boston. The reason: Utilities are expected to spend heavily to upgrade plants and other facilities to avoid a recurrence, and Massachusetts has several companies, such as American Superconductor Corp. of Westborough, that make capital goods for the industry.
Business spending is particularly important for Massachusetts, which has a high concentration of companies that sell goods and services to other firms. Of all the positive signals for the state's economy, perhaps the most hopeful are indicators that say business spending, particularly in technology, is on the rise.
The US Commerce Department recently reported that national business investment in equipment and software jumped an annual rate of 7.5 percent in the second quarter - the biggest increase since mid-2000.
Meanwhile, new factory orders for computers and electronic equipment rose in June for the third consecutive month and have increased by 4.1 percent since March, the Commerce Department said.
Local firms verify this jump in business spending. Richard Vaughn, CEO of Peabody Office Furniture of Boston, which sells office furniture to a wide variety of businesses, said sales are now running better than 25 percent ahead of last year; the company is hiring 10 employees.
In Fitchburg, Smurfit Munksjo Paper Inc., which makes paper for decorative laminates used in office furniture, also plans to add workers in the fall - five, to bring its employment to 131 - to meet the growing demand in this market.
Businesses are not just buying furniture. Brian Keane, president of Keane, Inc., which provides technical and software services to other firms, said that clients who a year ago not only put planned projects on hold but canceled those underway are now moving ahead with new initiatives.
By the end of last year, the company's quarterly bookings had plummeted by about 50 percent from 2001. They have since rebounded, jumping 45 percent in the first quarter and another 10 percent in the second. The company slashed some 2,500 jobs worldwide during the recession but has since hired 40 to 50 people in its Boston office over the past few months.
"We're in a more stable environment," Keane said, "and one that is showing signs that there could be some growth."
After more than two years of falling revenues, double-digit job losses, and business failures, stability doesn't seem so bad to technology companies that survived the crash. Ultimately, a rebound in this sector - which led the '90s expansion, accounting for about half the jobs created in the state during that period - is critical to Massachusetts' economic recovery.
The turnaround is not coming easily or quickly, but technology executives point to signs that it may be on the horizon. Tom Newman, vice president of corporate relations at Teradyne, Inc., said that for the first time in 18 months, the Boston-based company's orders and shipments are projected to be about equal, meaning it may not have to further deplete the steadily declining backlog built during the boom.
The company has seen orders for its semiconductor testing equipment, its core business, grow about 20 percent in each of the past two quarters, although the company's revenue has run less than half of its peak in 2000.
At EMC Corp. of Hopkinton, the computer-storage maker considered a bellwether of the technology industry, executives are projecting double-digit growth through next year and modest hiring in very targeted areas.
Bill Teuber, the chief financial officer, said growth is coming from new products and gains in market share, as opposed to an expanding economy, but added that corporations that were particularly tight-fisted last year seem to be spending more of their technology budgets.
"The light at the end of the tunnel is getting brighter," he said.
Among the brightest signs is a pick-up in temporary employment. Economists view temporary hiring as a leading indicator for the job market, since businesses tend to hire temps when conditions first improve and follow up with permanent hiring as they gain more confidence.
Professional Staffing Group in Boston provides an example. Since the temporary employment market apparently hit bottom in the spring, weighed down by the Iraq war, hiring of the company's temporary workers has rebounded vigorously, jumping 30 percent, said Aaron Green, the company's president.
In addition, businesses appear to be gaining the confidence to add permanent workers to their payroll: the agency's placement of so-called temps to hire - temporary workers whom companies are interested in later hiring permanently - has jumped 15 percent since spring, Green said.
"It had been touch and go," said Green, "but now there seems to be some strength underneath."
There are other signs of emerging strength. Robert Smyth, executive vice president of commercial banking at Citizens Bank of Massachusetts in Boston, said the bank's commercial lending operation is seeing businesses that had been sitting tight now inquiring about financing for expansions and acquisitions.
He added that many businesses are coming off the downturn in strong financial positions to expand, having socked away cash - the bank's deposits are up by "hundreds of millions of dollars" - and taking advantage of historically low interest rates to refinance and lower debt, as well as modernize plants to become more competitive.
Among those exploiting the low interest rates was Mason Box Co. of North Attleborough, which last fall invested some $600,000 to add two robot-operated automated lines to its box manufacturing operation. Hugh Mason, the company president, said the company's sales are again turning up, and its backlog, which has been growing since spring, is at least 20 percent ahead of last year.
Now the company, which employs about 130 people, plans to hire at least four workers to help catch up.
Chand Associates, Inc., of Worcester, which makes ceramic vessels used in manufacturing computer chips and employs about 60 people, has also seen its backlog grow - about 20 percent since the beginning of the year - and is looking to hire a machinist and tool-and-die maker.
"Sales are picking up, but we're not at a point where we would say we're home free," said Alina O. Chand, the company president. "But my gut feeling is that it's not going to get any worse."
Robert Gavin can be reached at rgavin@globe.com.
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