If an economic slowdown indeed lies ahead in the second half of 2006, many southeastern Wisconsin businesses don’t see it coming.
Or, perhaps, the Milwaukee-area is better-positioned to survive a slowdown than the nation overall.
More than three-quarters of the businesses surveyed by the Metropolitan Milwaukee Association of Commerce (MMAC) foresee rising real sales levels for their companies in the third quarter, compared with the sales of the same quarter a year ago.
Furthermore, a strong 60 percent of those surveyed forecast employment gains for their local operations in the third quarter.
The MMAC Business Outlook Survey contains responses from 114 Milwaukee-area firms, both large and small, employing more than 63,400 people. The MMAC provides exclusive first glimpses of its quarterly surveys to Small Business Times.
“The level of optimism expressed by area businesses was surprisingly positive, considering the metro area’s lackluster employment trend through 2006’s first six months,” said Bret Mayborne, the MMAC’s economic research director. “Expectations for third-quarter sales, profit and employment levels were particularly optimistic among those manufacturers polled.”
Mayborne said he was surprised by the optimistic outlooks because only seven of the 23 local economic indicators tracked by the MMAC showed positive results in the most recent monthly report, which showed significant declines in local hiring and commercial building construction.
Seventy-six percent of surveyed businesses see rising real sales levels for the third quarter (vs. 2005’s third quarter), nearly matching the 77 percent who forecast second-quarter gains. The percentage of businesses predicting quarterly sales increases has reached 70 percent or better – generally indicative of a healthy business environment – in each of the past 11 consecutive quarterly surveys.
Currently, only 5 percent see declines in third-quarter sales levels, while 19 percent expect no change.
Manufacturers and larger employers surveyed were more confident of improving third-quarter sales levels than non-manufacturers and small businesses. Eighty-four percent of manufacturers see third-quarter sales gains (vs. 2005’s third quarter), while 71 percent of non-manufacturers see such increases.
The gap among large (100 or more employees) and small employers was nearly as large. By employment size, 80 percent of large companies surveyed see third-quarter sales gains vs. 72 percent among small companies.
Despite a lackluster employment trend in the metro area over 2006’s first half, survey results suggest job gains in 2006’s third quarter. Businesses forecasting third-quarter 2006 employment gains (60 percent) vs. year-ago levels outnumber those expecting job declines (11 percent) by more than a five-to-one margin. This marks the largest percentage of employers predicting job increases since 1998’s third quarter when 61 percent of those surveyed predicted future employment increases.
Job expectations also rose over the second quarter’s level, when 50 percent of respondents forecast employment growth (vs. 2005’s second quarter).
Manufacturers are more likely to forecast third-quarter employment gains (70 percent expect increases vs. year-ago levels) than non-manufacturers (where 53 percent see such gains). But in both cases, the number of businesses expecting quarterly job declines (7 percent in manufacturing and 13 percent in non-manufacturing) is considerably smaller than those expecting job gains.
Twenty-three percent of manufacturers and 34 percent of non-manufacturers see no change in third-quarter employment levels.
Profit expectations dipped slightly for 2006’s third quarter but remain strong. Sixty-seven percent of all businesses surveyed see increases in third-quarter profit levels (vs. year ago levels), down from the 71 percent who predicted second-quarter gains. Eight percent see declines in third-quarter profits, while 25 percent expect no change.
Sales expectations for calendar year 2006 have improved slightly as the year has moved forward. At the year’s midpoint, 80 percent of all businesses surveyed see real sales levels increasing for 2006 as a whole, up from the 78 percent who forecast an annual real sales gain at the beginning of 2006. Currently only 4 percent expect sales declines and 17 percent predict no change.
Optimism toward profit levels remain healthy but have moved modestly downward. Sixty-seven percent of businesses predict profit increases in 2006, while 11 percent see declines (the remaining 22 percent predict no change). The current percentage expecting profit increases for the year is down from the 74 percent who opened 2006 expecting profit gains.
Employment expectations for the year were even stronger than quarterly expectations. Nearly two-thirds (64 percent) of employers surveyed forecast employment increases in 2006 for their local operations, outnumbering those who expect job declines (8 percent) by an eight-to-one margin.
Twenty-eight percent see no change in employment levels. Current calendar year expectations are higher than both forecasts made at 2006’s start, when 54 percent predicted 2006 job gains, and the third-quarter expectation, where 60 percent expect job gains in the quarter (vs. year-ago levels).
Employers are more optimistic toward capital spending plans now than at the beginning of 2006. Fifty-eight percent of employers see annual capital expenditure increases in 2006, while 32 percent see no change. Only 10 percent expect capital spending declines for the year. The percentage seeing increases now is up from the 40 percent who saw capital expenditure gains at the beginning of 2006.
Inflation expectations remain moderate. The vast majority of those surveyed (84 percent) see price inflation falling in the 3- to 5-percent range for 2006. An equal percentage (8 percent) forecast inflation either below (2 percent price inflation or less) or above (6 percent inflation or higher) this range.
Expectations toward wage and salary increases pushed upward a bit. A 3.1-percent increase in per employee wages and salaries is projected over the next 12 months, up from the 2.8 percent increase forecast three months ago. Larger employers see a 2.8-percent gain (vs. the 3.4-percent increase predicted for smaller employers), while non-manufacturers predict a 3.2-percent rise (vs. 3 percent for manufacturers).
