Envision Tees, a custom T-shirt printing company, has been
losing money as corporate events nearly vanished during the COVID-19 pandemic.
Yet CEO Tom Rauen recently stocked up on shirts, coffee mugs
and other inventory and spent more than $100,000 on a new production machine to
gear up for an expected sales surge after a vaccine becomes widely available as
early as midyear.
“We’re looking ahead to keep up with demand,” says Rauen,
whose Dubuque, Iowa-based company has been hit with a 20% drop in sales during
the health crisis. . “We can’t sell it if we don’t have it.”
Despite the U.S. economy battling through a rough few months
amid coronavirus surges and business lockdowns, many companies are ramping up
spending to gird for a potential sales spike when the effects of the outbreak
ease.
Business purchases from other businesses rose nearly 11% in
December compared with the same period a year earlier, their best showing in
2020 and up from a 3.7% annual rise in November, according to Cortera, which
tracks business-to-business spending. From March through August, such “B2B”
purchases were falling year-over-year.
That means retailers, manufacturers, wholesalers and other
companies are snapping up inventory, parts, raw materials, equipment and other
goods and services even though their sales aren’t increasing as sharply or are
even falling. Last month, U.S. retail sales declined from November’s level, the
second straight monthly drop, and employers shed 140,000 jobs, the first
payroll losses since the depths of the pandemic in April.
Some economists say there’s still a risk of another
recession this winter despite Congress’s recent passage of a $900 billion
COVID-19 relief package that extends unemployment benefits, sends more stimulus
checks to households and provides additional aid to small businesses.
The solid growth in business spending underscores that most
companies remain confident the economy will emerge from the winter rough patch
within months, some experts say. It also provides a boost to activity until
consumers begin spending more freely.
First spending, then jobs
“Businesses are getting increasingly healthy and showing
confidence that the economy will continue to improve,” says Cortera CEO Jim
Swift. Many companies, he says, are less willing to hire workers in large
numbers during an uncertain period, but their purchases are likely an early
sign that such hiring will eventually follow.
A government measure of business equipment investment also
reflects corporate optimism and rose more slowly in November, but the Cortera
data captures a broader range of company purchases.
Manufacturers’ outlays rose 5.5% last month from a year
earlier. While the industry added a sturdy 38,000 jobs in December, its total
employment was down 4.3% from the year-ago period, Labor Department figures
show, indicating there may be room to ramp up hiring, Swift says. Spending by
retailers climbed 16.2% annually. And while the industry added 120,000 jobs
last month, its payrolls remained 2.6% below its December 2019 level.
Rauen, of Envision Tees, says he laid off 30 of his 35
employees in March, then increased his staff to 25 with the help of a
forgivable federal loan. He’s hesitant to hire any more workers now, but his
investments in inventory and equipment require less of a commitment.
Rauen wants to be ready for a big rebound in sales for
several reasons. There could be lots of pent-up demand from companies and
schools itching to hold events again and needing T-shirts, mugs, notebooks and
other accessories for the gatherings.
“It’s hard to tell how fast things are going to change, but
mentally, emotionally, everybody’s ready for the change,” he says.
Also, Rauen says, several of his competitors have gone out
of business and he believes he’s positioned to scoop up some of their
customers.
And the pandemic forced many overseas factories to operate
at reduced capacity, causing some T-shirt styles, colors and sizes to go out of
stock. Rauen doesn’t want to be caught flat-footed when demand comes back.
The business spending gains may not only reflect optimism
over future sales increases, Swift acknowledges. Some retailers, for example,
may have ordered lots of inventory in anticipation of strong holiday sales that
didn’t materialize. But the spending figures have trended higher for several
months, seemingly pointing to a longer-term trend.
Home-based economy still thriving
Much of last month’s gains were in industries already doing
well as a result of a home-based economy that has thrived during the health
crisis, Cortera’s figures show. Yet the strong increases could show that
further advances lie ahead, Swift says.
December outlays by health and personal care stores, for
example, leaped 27.2% annually, compared with a 5.8% increase in their retail
sales, the Cortera report shows.
Greg Martellotto, president of San Diego-based One Vine
Wines, which sells wines online, increased his inventory purchases recently
because he's worried about pandemic-related supply shortages. He also wanted to
rush in more product to avoid the expansion of a Trump administration tariff to
a broader array of wines imported from Europe.
Other sectors continue to struggle but their heavy spending
may augur a brighter outlook. Outlays by clothing stores rose 26.6% in December
despite a 16% decline in their sales. Purchases by transportation equipment
manufacturers plunged nearly 65% in April and May but notched nearly a 15%
increase in December.
Other industries – such as airlines and restaurants and bars
– continued to reduce their spending last month, though the size of the cuts
has been decreasing.
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