Business confidence in future growth prospects turned downward in 2012’s fourth quarter, according to the latest Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce.
Nonetheless, the largest number of companies surveyed continue to see gains in sales, profits and employment — just not at levels expressed in earlier quarters.
The results of the MMAC’s survey give some pause as to how strong growth will be in the future. While most companies expect growth to continue through the remainder of 2012 and into 2013, the level of optimism toward future growth has significantly waned over the past three months.
The results of this fourth quarter survey suggest that business confidence has eroded noticeably over the last three months to levels that place the line between growth and stagnation a little close for comfort. Hopefully, the metro area can ride the continuing strength in manufacturing until other sectors of the economy can gather momentum.
For the most part, business optimism in the metro area held at relatively healthy levels through 2012’s third quarter, but expectations have retreated in the fourth quarter. The fall in expectations (vs. third quarter levels) ranged from an eight percentage point drop in quarterly sales gain expectations to an eleven point drop in profit forecasts.
Sixty-one percent of all businesses surveyed see real sales gains in 2012’s fourth quarter (vs. year-ago levels). Fourteen percent predict fourth-quarter sales declines (vs. 2011’s fourth quarter) while 24 percent expect no change. The percentage forecasting quarterly sales gains (vs. year ago levels) is down from the 69 percent who forecast third-quarter gains and marks the lowest percentage predicting sales increases since 2010’s fourth quarter.
Fourth-quarter sales expectations are uneven both by industry and by firm size. Manufacturers are more likely to predict real sales gains than non-manufacturers. Sixty-six percent of manufacturers see fourth-quarter sales gains (vs. 2011’s fourth quarter), while 57 percent of non-manufacturers predict such increases. By firm size – 69 percent of large companies (100 or more employees) surveyed see fourth-quarter sales gains vs. 55 percent among small companies.
Diminished profit expectations also were registered. Presently, 53 percent of all surveyed businesses predict fourth-quarter profit gains (vs. 2011’s fourth quarter), eleven percentage points lower than the 64 percent who saw third-quarter increases (vs. year-ago levels). Currently, 19 percent see profit declines in 2012’s fourth-quarter and 28 percent see no change.
The job situation in the metro area has been difficult through 2012’s first eight months. Compared to year-ago levels, jobs have declined in each of the 2012’s first eight months with a year-to-date average loss of 0.4 percent. On an industry level, seven of ten major industry sectors have recorded year-to-date declines.
However the manufacturing sector has been on a run, growing over 26 consecutive months on a year-over-year basis.
Despite the lackluster overall employment environment, metro area companies remain more likely to forecast rising job levels. The largest number of those surveyed see fourth-quarter job growth over year-ago levels, outnumbering those expecting declines by over a four-to-one margin (46 percent see job increases, 11 percent declines, and 43 percent no change). Like sales and profit expectations, the current percentage forecasting employment gains ranks below third-quarter levels when 55 percent saw quarterly job increases.
Job expectations are noticeably higher for the manufacturing sector. Fifty-nine percent of manufacturers expect fourth-quarter employment gains while only 7 percent predict declines. Thirty-four percent see no change. Among non-manufacturers, the largest number of respondents predict no change in fourth-quarter jobs levels (52 percent). Still, non-manufacturers seeing job gains (34 percent) outnumber those forecasting declines (14 percent) by over a two-to-one margin.
A weakening job trend has led to slightly lower wage and salary expectations. Employers project an average annual increase of 2 percent in per employee wages and salaries over the next 12 months. The forecast average is down from the 2.3 percent rise projected three months ago and the 2.4 percent increase predicted in 2011’s fourth-quarter survey.
Calendar year sales expectations moved noticeably downward in 2012’s fourth quarter. With only one quarter remaining, 63 percent of businesses surveyed predict rising real sales levels for 2012 as a whole. This forecast is down from the 77 percent who saw calendar year sales gains in June and the 73 percent who forecast annual gains at the beginning of 2012.
Currently, only 13 percent of businesses expect sales declines for the year as a whole, while 24 percent predict no change.
Local businesses gave their first look at expectations for the 2013 calendar year in this survey. Sixty-five percent of metro area businesses see real sales gains in 2013 (vs. 2012) while only 6 percent project declines. The remaining 29 percent see no change. Twelve months ago, survey respondents were more optimistic toward 2012 with 79 percent forecasting sales gains for the calendar year.
Like the quarterly results, manufacturers and large employers are more likely to see 2013 sales increases. Seventy-five percent of manufacturers expect gains for the year vs. 57 percent among non-manufacturers.
The split for large vs. small employers ranked the same – 75 percent of large employers see real sales gains in 2013 vs. 57 percent for small employers.
The Business Outlook Survey, conducted by the MMAC, contains responses from 120 Milwaukee area firms, both large and small, employing more than 54,100 people. n
Bret Mayborne is the economic research director at the Metropolitan Milwaukee Association of Commerce (MMAC).
