Local economy still searching for the bottom

For the second consecutive quarter, business confidence among Milwaukee area businesses turned significantly downward, according to the latest business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC). Optimism toward second-quarter sales, profit and job levels fell from those expressed in the first quarter.

The MMAC Business Outlook Survey contained responses from 150 Milwaukee-area firms, both large and small, employing more than 67,250 people.

The latest survey results indicate that metro Milwaukee businesses do not expect an imminent positive change in the current economic environment.  It appears at this point that the onset of an economic turnaround is more likely to occur well into 2009’s second half, if not beyond.

Only 22 percent of surveyed businesses see rising real sales levels for the second quarter (vs. 2008’s second quarter), down from the 29 percent who forecast first-quarter gains. Conversely, 61 percent see declines in second-quarter sales levels, while 18 percent expect no change in the quarter. The percentage expecting quarterly sales declines (vs. year-ago levels) has risen by 36 percentage points in just two quarters, from 25 percent in 2008’s fourth quarter to the present 61 percent.

At present, there is not an obvious light at the end of the tunnel, be it hidden in business expectations or in local economic indicators.  Without any tangible early evidence, picking a turning point would be mostly speculation, but with the recession already 15 months old, history would suggest that we may be at or near the bottom of this economic cycle.

Current growth expectations are at historically low levels. When only large company survey results are looked at, the second quarter’s level of quarterly sales pessimism is the highest recorded since similar surveying began in 1975.

Similar, although lower levels of pessimism were posted in the 1980-1982 period.

By broad industry, manufacturers expressed higher-than-average levels of pessimism in the latest quarter, with nearly three-quarters (72 percent) of manufacturers projecting sales declines.

Profit expectations mirror those posted for sales. Sixty-one percent of area businesses surveyed expect profit declines for 2009’s second quarter. Only 22 percent of businesses surveyed see increased profit levels (vs. year ago levels), down from the 33 percent who forecast first-quarter profit gains. Seventeen percent of those surveyed expect no change.

The metro Milwaukee area posted a modest 0.6-percent decline in jobs for 2008, but the overall trend deteriorated as the year moved foreword. The year ended with eight consecutive months of year-over-year decline and accelerating job loses, and then 2009 began with even stronger declines, with year-over-year drops of 3 percent and 3.5 percent in January and February (latest available), respectively.

Survey results indicate continuing weakness in the future job trend. Fifty-eight percent see declines in future employment levels (vs. one year ago) at their local operations. Those projecting job declines outnumber those seeing employment increases (14 percent) by more than a four-to-one margin. The percentage forecasting a job decline is up from the 43 percent who saw declines for 2009’s first quarter and marks the sixth time in seven quarters in which job expectations have slid from one quarter earlier.

Larger employers and manufacturers are more likely to predict second-quarter job declines. Among large employers, 70 percent forecast second-quarter job decreases, while only 10 percent predict increases. The remaining 19 percent see no change.

Among all companies surveyed, more than half (53 percent) currently indicate that wages and salaries (per employee) will be unchanged over the next 12 months.

Expectations for the year 2009 as a whole have been revised downward since the beginning of the year. Three months into 2009, 61 percent of businesses surveyed expect declining sales levels for 2009 as a whole, up from the 42 percent who saw declines at the beginning of 2009. Currently, 25 percent project a yearly sales increase, while 14 percent see no change. 

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