Local businesses temper their optimism, according to new MMAC outlook survey

Optimism among Milwaukee-area businesses remains strong, but it is slipping a bit from the previous quarter, according to the new Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).
Of the businesses surveyed, projections for sale and employment in the third quarter dropped slightly from the previous quarter.
"Expectations toward the coming quarter are not quite as robust as they were for 2004’s second quarter," said Bret Mayborne, the MMAC’s economic research director. "But the level of optimism expressed by Milwaukee area businesses is one that you would expect to see during a period of economic expansion and employment growth."
The Business Outlook Survey, conducted by the MMAC, contains responses from 117
Milwaukee area firms, both large and small, employing more than 43,250 people.
The optimism among local businesses is being tempered by rising expectations about inflation and labor costs.
In the survey, 70 percent of the surveyed businesses are predicting rising real sales levels for the third quarter, down from the 74 percent who forecast second-quarter gains. The percentage of businesses predicting quarterly sales increases has now reached 70 percent or better for the third consecutive quarter, something that has not occurred in more than five years (since 1998’s fourth quarter).
Currently, 8 percent see declines in third-quarter sales levels, while 22 percent expect no change. Manufacturers were somewhat more confident of improving third-quarter sales levels than non-manufacturers.
Seventy-three percent of manufacturers see third-quarter sales increases, while 69 percent of manufacturers see such gains. An even larger expectation gap exists among large (100 or more employees) and small employers. By employment size, 79 percent of large companies surveyed see third-quarter sales gains, compared with 61 percent among small companies.
Profit expectations held steady for 2004’s third quarter. Sixty-three percent of all businesses surveyed see increases in third-quarter profit levels (vs. year ago levels), matching the total who predicted second-quarter gains. Conversely, 14 percent see declines in third-quarter profits,
while 23percent expect no change.
The survey results suggest that the local employment trend may return to growth in 2004’s third quarter. Businesses forecasting third-quarter 2004 employment increases (37 percent) vs. year-ago levels outnumber the proportion expecting job declines (13 percent) by nearly a three-to-one margin.
This marks the fourth consecutive quarter in which this situation has applied, a time over which persistent year-over-year job declines have diminished.
Manufacturers are slightly less likely to forecast third-quarter employment increases (34 percent see increases vs. year-ago levels) than non-manufacturers (where 38 percent see such gains). However, in both cases the number of businesses expecting quarterly job declines (16 percent in manufacturing and 12 percent in non-manufacturing) is considerably smaller than those expecting job gains.
Fifty percent of manufacturers and non-manufacturers see no change in third-quarter employment levels.
Sales expectations for calendar year 2004 have become more conservative as the year has moved forward. At the year’s halfway point, 69 percent of all businesses surveyed see real sales levels increasing for 2004 as a whole, down from the 75 percent who forecast a yearly real sales increase at the beginning of 2004.
Currently, 16 percent expect sales declines and 16 percent predict no change.
Profit expectations followed a similar path. Sixty-six percent of businesses predict profit
increases in 2004, while only 15 percent see declines (the remaining 20 percent predict no change). The current percentage expecting profit increases for the year is down from the 71percent who opened 2004 expecting profit gains.
Survey results suggest that job growth is likely for 2004 as a whole. Those forecasting
employment increases in 2004 for their local operations (44 percent) outnumber those who expect job declines (12 percent) by nearly a four-to-one margin. Forty-four percent also see no change in employment levels. Current calendar year expectations are down from forecasts made at 2004’s start, when 48 percent predicted 2004 job gains and only 11 percent saw declines.
Currently, manufacturers are more likely to forecast annual increases in employment, sales and profits than non-manufacturers. This may be more a reflection of the manufacturing sector finally showing signs of life after years of sluggishness than any lack of optimism among non-manufacturers surveyed, Mayborne said.
Employers are now slightly more optimistic toward capital spending plans than at the beginning of 2004. The largest group of employers (44 percent) see annual capital expenditure increases in 2004, while 38 percent see no change. Only 19 percent expect capital spending declines for the year. The percentage seeing increases is up from the 41percent who saw annual capital expenditure increases at the beginning of 2004.
Inflation expectations have notched upward in recent quarters. Presently, 73 percent of those surveyed see price inflation of 3 percent or higher in 2004, up from the 61 percent of respondents who predicted this level of inflation at the 2004’s start.
Expectations toward wage and salary increases held steady. A 2.7 percent increase in per employee wages and salaries is projected over the next 12 months, matching the percent increase forecast three months ago.
Small employers and non-manufacturers predict higher wage and salary increases over the next year. Smaller employers see a 3 percent gain (compared with the 2.5 percent increase predicted for large employers), while non-manufacturers predict a 2.9 percent rise (vs. 2.3 percent for manufacturers).
June 25,2004, Small Business Times, Milwaukee, WI