Small businesses in the Capital Region are sending mixed signals about the future of the state’s economy, according to a new analysis.
But Gov. Dannel P. Malloy told about 300 small business leaders gathered Friday at The Hartford Hilton that the climate for economic growth is gradually improving.
Just 35 percent of the firms surveyed in The Hartford’s third annual Small Business Success Study are optimistic about where the local economy is headed over the next six months. That compares with 48 percent that see positive signs in the national economy.
Yet Hartford business owners — though still generally cautious — are hiring workers more often than small businesses are nationally.
Connecticut’s small companies have adjusted to the “new normal” — an extended period of average sub-par economic growth since the last recession ended three years ago, said Liam E. McGee, The Hartford’s chief executive officer.
“Small firms have reset their expectations,” he said, adding that “many of these entrepreneurs still have deep scars from the Great Recession. … They choose their clients with greater care and they hoard cash.”
Despite seven out of 10 businesses surveyed feeling their company operates successfully, a matching number said their risk-taking — hiring workers, adding new products or services, investing in equipment — hasn’t changed over the past year.
“What we may be dealing with is a vicious cycle,” McGee said, adding that while businesses are waiting for consumer demand to grow behind hiring more staff, consumers are holding onto their cash until the job market improves.
But Malloy insisted there are reasons for Connecticut’s small businesses to feel greater optimism about the future.
The governor said more than 900 companies have received grants, loans or some other form of aid through Connecticut’s Small Business Express program since its enactment in October 2011.
By comparison, he said, fewer than 120 small companies received state assistance in the eight years prior to his administration.
“The program we have in Connecticut is not replicated anywhere else,” Malloy said.
The governor also left the door open to tax reform to spur small business growth, though he conceded it has been difficult to do while state government has struggled with budget deficits. “I think we tax the wrong things and the wrong activities.”
Malloy inherited a $3.7 billion projected shortfall, equal to nearly one-fifth of the annual operating budget, when he took office in January 2011.
Though the current state budget is balanced, nonpartisan analysts are projecting a deficit of just over $700 million for the first new budget after the November 2014 gubernatorial elections.
“Things are getting better,” Malloy said. “We are meeting our revenue expectations.”
The governor added later that the state’s tax system should better reflect the small profit margins small businesses face compared with large corporations.
The Hartford’s survey also found that small businesses remain wary of the federal health law commonly known as Obamacare.
Of those business leaders who consider themselves “somewhat informed” about the law or better, 41 percent anticipate it would have a negative impact on their companies, with 38 percent predicting no impact and 18 percent anticipating something positive.
And of those expecting a negative impact, 80 percent predicted they would have to reduce worker hours or curb future hiring.