MMAC members are bullish about 2015

Strong levels of optimism were expressed by Milwaukee-area businesses for 2015, according to a Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

Eighty-three percent of businesses surveyed see sales increases in 2015, while 76 percent predict profit gains and 63 percent expect employment growth for their local operations.

Improving business activity emerged in 2014, particularly in the year’s second half.

Results from the first quarter survey suggest that the foundation is in place for this strong growth environment to continue into 2015. Typically, in a healthy growth environment the percentage of businesses expecting real sales increases would range in the seventies to low eighties. The current level of optimism is at the high end of this range, giving some measure of confidence in a continuing strong growth period.

Sales optimism among Milwaukee area businesses is at a high level. Eighty-three percent of those surveyed expect increases in real sales levels in 2015. Only 5 percent predict sales declines, while the remainder (12 percent) see no change. The proportion predicting 2015 sales growth ranks higher than the 75 percent who began 2014 predicting sales increases for that year as a whole, and ranks as the strongest calendar year sales expectation expressed since 2006’s second quarter.

The sales outlook by industry is fairly balanced. Eighty-four percent of non-manufacturers predict sales growth in 2015, versus 82 percent among manufacturers. By employment size, large employers (100 or more employees) are more likely to forecast 2015 sales gains than small employers (88 percent of large employers see sales increases versus. 78 percent for small companies).

Profit expectations for area businesses are likewise robust. Seventy-six percent of those surveyed see profit level improvements in 2015, eleven percentage points higher than at the opening of 2014. Currently, only 9 percent see profit declines while 15 percent expect no change.

Manufacturers (78 percent) and large employers (83 percent) are most likely to predict 2015 profit gains.

Regarding capital spending plans, 47 percent of all companies surveyed forecast a rise in capital expenditures for the year. Nineteen percent see capital spending declines and 35 percent expect no change. The percentage predicting increases is up modestly from the 45 percent who opened 2014 expecting capital spending gains. More than half (55 percent) of non-manufacturers predict increases in capital expenditures in 2015 versus 37 percent among manufacturers.

What was a lackluster post-recession jobs recovery has improved in recent months. Employment in the metro area grew at a 1.3 percent rate in 2014’s first half (year-over-year) but the average pace of growth has nearly doubled since (up 2.5 percent). Survey results suggest a high level of confidence toward future job increases, with 63 percent of all businesses expecting increases in their local workforces in 2015, outnumbering those predicting declines (5 percent) by more than a 12-to-1 margin. Thirty-two percent see no change.

Employment outlooks are strongest among manufacturers and small employers. Currently, 67 percent of manufacturers predict job increases during the calendar year 2015 (versus 60 percent for non-manufacturers).

Seventy-one percent of small employers predict 2015 job gains (versus 56 percent for large employers).

Accelerated job growth may be partly responsible for an upward trend in forecast wage and salary gains. Presently, the average change in per person employee wages and salaries is forecast to rise 2.6 percent over the next 12 months, up from the 2.4 percent increase projected three months ago. The current increase marks the fifth time in the past six quarters that wage and salary expectations have increased.

Year-over-year, consumer price inflation has fallen from 2.1 percent in May to November’s 1.3 percent increase. Area businesses expect inflationary pressure to remain low. More thanone-half (52 percent) of all companies surveyed see 2015 inflation rates falling in the 0 percent to 2 percent range, while the remaining group (48 percent) expect price increases of 3 percent to 5 percent.

Businesses are a bit tempered in their optimism toward 2015’s first quarter. Three-quarters of those surveyed expect first quarter real sales gains (versus 2014’s first quarter), somewhat lower than the 83 percent who predict sales increases for 2015 as a whole. Nonetheless, only 6 percent see first quarter sales declines, and 19 percent expect no change. Current quarterly sales expectations rank above those expressed in 2014’s fourth quarter (when 69 percent forecast sales growth), and mark the highest level of quarterly sales optimism posted since 2012’s second quarter.

First quarter profit expectations are particularly high. Seventy percent see higher profits for the quarter (versus 2014’s first quarter), while only 8 percent predict profit declines. Twenty-two percent see no change. The percentage expecting profit increases is up from the 61 percent who forecast fourth quarter 2014 profit gains and ranks as the highest quarterly profit expectation given since 2006’s second quarter.

More than half (53 percent) of all businesses surveyed predict first quarter job gains for their local operations (vs. 2014’s first quarter), only 4 percent predict job declines, while 43 percent see no change.

The percentage forecasting first quarter gains is up marginally from the 52 percent who forecast fourth quarter 2014 job increases (versus year-ago levels). Non-manufacturers expressed a higher degree of confidence toward first quarter employment gains than manufacturers. Fifty-seven percent of non-manufacturers see employment increases in the first quarter of 2015 (versus 2014’s first quarter) vs. 48 percent among manufacturers surveyed. A smaller differential was registered between smaller employers (where 55 percent predict first quarter job gains) and large employers (52 percent see such gains).

The Business Outlook Survey, conducted by the MMAC, contains responses from 114 Milwaukee-area firms, both large and small, employing more than 59,200 people.

Bret Mayborne is the economic research director at the Metropolitan Milwaukee Association of Commerce.

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