Local economic recovery picks up steam

Milwaukee-area businesses have strong expectations of business growth in in the second quarter, according to the Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

Seventy-six percent of businesses surveyed see sales increases in the second quarter, 63 percent see profit gains and over half expect job gains for the new quarter.

Local expectations toward quarterly growth levels have largely reached pre-recession levels.

Business optimism in the Milwaukee area has been gathering momentum for over two years and has reached healthy levels. The hope is that this optimism is finally translated into a robust and sustained economic recovery.

The positive survey results are in part a reflection of the improving national business environment. Unemployment rates have started to inch downward and GDP growth has firmed, giving businesses greater confidence in a lasting recovery.

Quarterly sales expectations are as high as they have been in six years. Seventy-six percent of those surveyed expect second-quarter sales gains (vs. 2011’s second quarter), 5 percent see sales declines, and 19 percent expect no change. The current percentage predicting a quarterly sales increase is up from the 72 percent who forecast first-quarter sales gains (vs. 2011’s first quarter) three months ago. Expectations last exceeded current levels in 2006’s second quarter when 77 percent of those surveyed saw quarterly sales gains.

Manufacturers are particularly optimistic on future sales levels. Eighty-two percent of manufacturers surveyed see improved real sales levels in 2012’s second quarter, vs. the 72 percent of non-manufacturers who see such gains.

Likewise, large employers (100 or more employees) are more likely to forecast second-quarter sales gains than small companies (83 percent of large employers see gains vs. 69 percent for small employers).

Regarding profits, 63 percent of all Milwaukee area businesses see higher profits in 2012’s second quarter (vs. year-ago levels), matching the percentage who forecast first-quarter, 2012 profit gains. Currently 10 percent predict profit declines while 27 percent see no change.

Expectations expressed in each of the past two quarterly surveys equal the highest profit optimism levels posted since 2006’s third quarter.

Small year-over-year employment declines have been posted in 2012’s first two months. These losses come after gains were posted in 11 of 12 months in 2011, leading to a moderate aggregate job increase of 1 percent in 2011.

Despite 2012’s early weakness, area businesses see rising job levels for the coming quarter. Over half of businesses surveyed (54 percent) expect employment gains over year-ago levels, while only 9 percent predict job declines. Second-quarter expectations rank higher than the 49 percent of businesses who forecast first-quarter gains.

Employment gains in 2012’s early months have been led by the manufacturing sector. This trend is likely to continue with manufacturers significantly more likely than non-manufacturers to predict second-quarter job increases. Sixty-seven percent of manufacturers predict second quarter job gains (vs. year-ago levels), 20 percentage points higher than the 47 percent of non-manufacturers who see growth. An expectations gap is also evident by employment size. Small employers – with 59 percent seeing second-quarter 2012 gains – are more likely to predict employment growth than large employers – where 48 percent see gains.

A slowly improving labor market situation has future wage and salary increases on an even keel. On average, the change in per person employee wages and salaries is forecast to rise 2.3 percent over the next 12 months, marginally above the 2.2 percent annualized increase predicted three months ago.

Calendar year sales projections reached pre-recession levels. Currently, 79 percent of businesses surveyed see real sales gains for 2012 as a whole, only 2 percent see declines while 20 percent see no change. The percentage predicting annual sales gains was last higher in the third quarter of 2006 (when 80 percent saw gains), while the percentage currently forecasting declines is the smallest on record (since 1994’s first quarter).

The Business Outlook Survey, conducted by the MMAC, contains responses from 129 Milwaukee area firms, both large and small, employing more than 49,800 people.