Business growth is forecast in 2016 by most Milwaukee area employers, but the results of the annual Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce suggest a measure of caution.
Of the businesses surveyed, 75 percent expect sales increases in 2016, 65 percent predict profit gains and 51 percent expect employment growth for their local operations. Those survey results show less optimism than a year ago, when 83 percent predicted sales increases, 76 percent predicted profit gains and 63 percent expected employment growth in 2015.
Expectations toward sales, profits and employment remain at relatively healthy levels from a historical perspective but are down notably from forecasts at the beginning of 2015. This would suggest that metro area businesses are more tempered in their outlook toward local business activity in the coming year.
While 75 percent of those surveyed expect increases in real sales levels in 2016, 9 percent predict sales declines and the remaining 17 percent see no change.
Non-manufacturers and large employers are more likely to see real sales gains for 2016. Seventy-nine percent of non-manufacturers surveyed predict sales growth in 2016, versus 67 percent among manufacturers. By company size, 82 percent of larger employers (100 or more employees) forecast 2016 sales gains, while 69 percent of smaller employers see such gains.
For capital spending plans, 39 percent of all companies surveyed forecast a rise in capital expenditures for 2016. Twenty-four percent see capital spending declines and 37 percent expect no change. The percentage predicting increases is down from the 47 percent who opened 2015 expecting capital spending gains.
Employment expectations for 2016
Job totals in the metro area are finishing up their fifth consecutive year of annual growth. 2015’s 1 percent increase, although modest, has pushed employment totals close to pre-recession highs. For 2016, more than half (51 percent) of the businesses surveyed by the MMAC expect job gains in their local operations. Only 11 percent forecast a 2016 employment decline, while 39 percent see no change.
Employment expectations for 2016 as a whole are similar among manufacturers and non-manufacturers. Fifty-two percent of non-manufacturers predict job increases in 2016, while 49 percent of manufacturers see employment gains.
Wage and salary expectations rose over those expressed three months ago, but remain in the tight range expressed in the past five years. Over the next 12 months, the average change in per person employee wages and salaries is forecast to rise 2.5 percent – higher than the 2.1 percent annualized increase predicted in 2015’s fourth quarter – but down marginally from the 2.6 percent rise forecast one year ago.
Consumer price inflation nationally was under 1 percent throughout 2015. Inflationary pressures are likely to remain low, with a majority of companies (58 percent) seeing price inflation in the 0 to 2 percent range. Thirty-seven percent expect price increases of 3 to 5 percent, while only 5 percent predict price gains of 6 percent or higher.
First quarter expectations
A slow start to 2016 is forecast by area businesses, with first-quarter expectations falling below that expressed for the year as a whole. For 2016’s first quarter, 63 percent of those surveyed expect real sales gains (versus 2015’s first quarter), 13 percent see declines and 24 percent expect no change. The percentage predicting a quarterly sales increase matches the 63 percent who forecast fourth-quarter gains three months ago but falls short of the 75 percent surveyed who see real sales gains throughout 2016 as a whole.
First-quarter sales expectations among manufacturers are generally weak. Less than half of those surveyed (47 percent) expect first-quarter sales increases compared to year-ago levels. Conversely, 71 percent of non-manufacturers see real sales gains in 2016’s first quarter.
Profit expectations rebounded from a weak fourth-quarter forecast. Sixty percent of businesses see higher profits for the first quarter (versus year-ago levels), up from the 48 percent who forecast fourth-quarter 2015 profit gains. Currently, only 12 percent of those surveyed see first-quarter profit declines, while 27 percent see no change.
Among all businesses surveyed, 40 percent predict first-quarter job gains for their local operations (versus 2015’s first quarter), while 14 percent predict job declines. The largest number, 46 percent, see no change. The percentage predicting employment increases fell from the 50 percent who saw job gains three months ago and marks the lowest job expectation in nine quarters.
By industry, 44 percent of non-manufacturers see employment increases in 2016’s first quarter (over year-ago levels) versus 33 percent among manufacturers surveyed. Smaller and larger employers have similar levels of optimism – 41 percent of large employers and 40 percent of small employers see first-quarter job increases.
The Business Outlook Survey, conducted by the MMAC, contains responses from 114 Milwaukee-area firms, both large and small, employing more than 46,600 people.
-Bret Mayborne is the economic research director at the Metropolitan Milwaukee Association of Commerce.
