Metro Milwaukee businesses remain optimistic about future growth prospects, according to the latest business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce.
Seventy-two percent of businesses surveyed see rising real sales levels in 2014’s third quarter (vs. year ago levels), two-thirds expect profit increases and nearly half see employment gains.
Business optimism toward sales, profits and jobs either improved somewhat or held steady from three months prior, suggesting that the growth environment for the metro area remains largely intact for 2014’s third quarter.
Metro area job growth continued in the year’s first half, and unemployment rates fell. Strengthened job expectations hint that this trend is likely to continue.
The survey results indicate that over time, the quarterly outlook trend has improved while annual expectations have not. This is likely the result of the weak first-quarter economic performance registered both nationally and locally, which has negatively affected annual expectations.
Sales optimism among local businesses remains at a healthy level. Seventy-two percent of surveyed businesses see rising real sales levels for the third quarter (vs. 2013’s third quarter), matching the percentage that forecast second-quarter gains. Currently, 14 percent see declines in third-quarter sales levels, while 14 percent expect no change.
Little variation was evident by industry or firm size regarding expectations toward third-quarter sales levels. Seventy-three percent of manufacturers see third-quarter sales gains (vs. 2013’s third quarter), while 71 percent of non-manufacturers see such increases. By employment size, 73 percent of small companies (less than 100 employees) surveyed see third-quarter sales gains vs. 71 percent among large companies.
Profit expectations rose strongly for 2014’s third quarter. Sixty-six percent of all businesses surveyed see increases in third-quarter profit levels (vs. year ago levels), up from the 57 percent who predicted second-quarter gains. Currently, 15 percent see declines in third-quarter profits, while 18 percent expect no change.
Year-over-year employment gains have improved in recent months, pushing the year-to-date job gain to 1.1 percent through 2014’s first five months (latest available). Survey results suggest continuing job gains in 2014’s third quarter. Businesses forecasting third-quarter 2014 employment gains (49 percent) vs. year-ago levels outnumber those expecting job declines (10 percent) by nearly a five-to-one margin. Job expectations are stronger than expressed for 2014’s second quarter, when 41 percent of respondents forecast employment growth (vs. 2013’s second quarter).
Despite recent job declines, manufacturers are more likely to forecast third-quarter employment gains (54 percent expect increases vs. year-ago levels) than non-manufacturers (where 44 percent see such gains). In both cases the number of businesses expecting quarterly job declines (12 percent for manufacturers vs. 8 percent for non-manufacturers) is considerably smaller than those expecting job gains. Thirty-five percent of manufacturers and 47 percent of non-manufacturers see no change in third-quarter employment levels.
Unlike third-quarter prospects, expectations for the calendar year as a whole were down from earlier forecasts. Sales expectations for calendar year 2014 have trended downward since the beginning of the year. Six months into the year, 68 percent of all businesses surveyed see real sales levels increasing for 2014, down from the 75 percent who forecast an annual real sales gain at the beginning of 2014 and the 74 percent who predicted a yearly sales increase three months ago. Currently, 11 percent expect sales declines and 21 percent predict no change.
Optimism toward profit levels has held steady since January. Sixty-four percent of businesses predict profit increases in 2014, while 14 percent see declines (the remaining 22 percent predict no change). The current percentage expecting profit increases for the year ranks near the 65 percent who opened 2014 expecting profit gains.
Over half (55 percent) of employers surveyed forecast employment increases in 2014 for their local operations, outnumbering those who expect job declines (11 percent). Thirty-four percent see no change in employment levels. Current calendar year expectations are down from forecasts made at 2014’s start, when 59 percent predicted 2014 job gains.
On the three principal outlook measures (sales, profits and employment), there was some variation by industry and employment size. In each case, larger companies (100 or more employees) and manufacturers were somewhat more optimistic toward calendar year 2014 than their counterparts.
The largest number of businesses surveyed expect increased capital spending for the year. Forty-five percent of employers see annual capital expenditure increases in 2014, while 37 percent see no change. Only 18 percent expect capital spending declines for the year. The current percentage expecting increases matches the portion that predicted capital expenditure gains at the beginning of 2014.
Inflation expectations remain moderate. Half of those surveyed (50 percent) see price inflation falling in the 0 percent to 2 percent range for 2014. Forty-nine percent forecast inflation of 3 percent to 5 percent, while only 1 percent see inflation falling in the 6 percent or above range.
Expectations toward wage and salary increases ticked slightly upward. A 2.3 percent increase in per employee wages and salaries is projected over the next 12 months, slightly higher than the 2.2 percent increase forecast three months ago.
The Business Outlook Survey, conducted by the MMAC, contains responses from 111 Milwaukee area firms, both large and small, employing more than 27,900 people.
