How inflation impacts two Dayton region businesses

Housing developer Charlie Simms is a guy who takes the long view, and that is how he sees the current problem with inflation.

The sky is not falling.

“It’s affecting us a little, not a lot. Prices have gone up but interest rates are remaining low. Builders have to pass those costs on to our buyers,” said Simms, president of Charles Simms Development of Dayton, which builds townhomes and other attached, maintenance-free homes in Dayton, Springfield, Beavercreek, Centerville and Lebanon.

“Inflation has been so low for 20-some years. It’s not like we are doubling the prices of homes or anything like that. So with low interest rates and people’s buying power, and their wages have been increasing, let’s not forget that, people are still able to afford housing, especially in Dayton, Ohio,” said Simms. “We still have some of the most affordable housing in the whole country. So that’s why I say it’s affecting us a little, but not a lot.”

Credit: Hasan Karim

Credit: Hasan Karim

Two key measures of inflation are the Consumer Price Index and the Producer Price Index. Both were up in January compared to January 2021 and reflect the continued struggles with COVID-19 pandemic economic disruptions.

The CPI, which measures changes in the average price of consumer goods and services, increased 7.5%.

The PPI, which measures the average change in the selling price for goods and services produced in the U.S., increased 9.7%.

Credit: Alexis Larsen

Credit: Alexis Larsen

“Inflation doesn’t only impact consumers, Dayton area businesses are also feeling the pain of inflation. Business supply chain costs are going up rapidly and wage pressures have increased personnel costs,” said Chris Kershner, president and CEO of the Dayton Area Chamber of Commerce. “Eventually the economy has to normalize so that our area businesses can stabilize their operations.”

Credit: Caroline Williams

Credit: Caroline Williams

He said a key part of beating inflation will be resolving problems companies have filling jobs in a tight labor market.

“We need people to make the goods, run the docks, drive the trucks, stock the shelves and sell the products. Until the workforce market starts to balance out, we are going to keep having issues,” Kershner said.

Simms and Steve Staub, president and co-owner of Staub Manufacturing Solutions of Dayton, talked this month about the impact inflation is having on their companies.

Housing shortage is big issue

The higher cost for housing is driven by a shortage of it, said Simms. He blames government zoning and density regulations for driving up the cost, as well as some banking regulations that were put in place after the Great Recession.

He doesn’t think prices will keep escalating.

“Home prices are not sustainable, materials are not sustainable. I think we’ll have a correction in the next couple years,” Simms said. “It all goes back to supply and demand. We’ve got a housing shortage, and until we correct those issues, there’s going to be pressures on housing prices.”

Credit: Jim Noelker

Credit: Jim Noelker

Simms said things are going well in the real estate world, including his company, and those doing remodeling are also thriving because people are choosing to upgrade their own homes rather than buying another.

Builders have been plagued with supply chain problems, including shortages of windows and garage doors. But Simms said he’s only having a little trouble with supplies and with finding workers.

Getting supplies is easier in the Dayton region, he said, because there are only about 2,000 to 2,500 homes being built a year.

Dayton has a lot of reputable contractors, Simms said, so he’s been able to get workers he needs to complete his projects

“I don’t think we are in a real transient area where people move around a lot. Our contractors here in Dayton have been around a lot,” said Simms. “They’re pretty stable.”

Broad increases in costs

Staub said his costs are going up across the board at his company, which fabricates metal components using laser cutting machines.

“We do steel, aluminum and stainless and the cost of the materials alone have over quadrupled,” Staub said. “Even the industrial gases and those kind of things have all gone up. Shipping costs have gone up considerably.”

He was paying 40 cents a pound for steel by the truckload a couple of years ago.

“And then it peaked in the fall, November/December time frame, at around a buck-sixty or a buck-seventy a pound,” Staub said. “Now it is is down to about a buck-thirty or a buck-forty. But it’s still three times what it was.”

If the company makes a component for a heavy-duty truck, the cost of materials have gone up. Then it gets cut, formed and welded— a process that involves nitrogen, oxygen and welding gasses, which all have increased in price.

“All along the way everything we do to that piece has gone up. So at the end of it, we have a finished part that goes to a heavy truck manufacturer,” said Staub. “So that company has to raise costs for its customers, who then raise theirs.”

Ultimately if that truck is delivering products to a grocery store, the store pays more for the delivery and then has to raise its prices, in what Staub calls “a continual loop.”

He’s noticed material prices do seem to be declining the past four to six weeks, but supply chains remain difficult, particularly for aluminum.

Last year it took him about eight months to get a new press brake, an expensive piece of equipment that forms metal. He took advantage of low interest rates to buy it and noted that if the Federal Reserve raises short-term interest rates to battle inflation, it will make large purchases like that more costly.

“I’m an optimistic person, so I always try to have an optimistic view of things. But there are certain things: raising interest rates slows home sales, and slows down machinery sales and slows down automotive purchases,” Staub said. “There are some concerns it will slow things too much, but it also helps contract inflation.”

He said as far as hiring, he doesn’t have a major problem as the company’s turnover rate is about 5%.

Staub has raised wages and improved new hire vacation policies, as well as continuing to offer retirement and “really good insurance” benefits, Staub said. Staub has long had a training program for high school seniors to teach them welding and other skills, with an eye toward hiring them full-time after graduation.

Staub knows he’s competing with the area’s many warehouse companies for people who don’t have a lot of skills, but said a manufacturing plant offers the chance to learn more skills and grow in the job.

“So they might hire on here at the same rate they have at a warehouse, but they have a future here,” Staub said.

See all of the Dayton Daily News stories in this series on inflation:

Inflation hitting local families, businesses; when will the pain stop?

Here is how inflation impacts two Dayton region businesses

PHOTOS: Families and business cope with inflation

5 things to know about the Consumer Price Index

What are signs that U.S. economy is on right track?

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