MMAC members forecast more growth

Milwaukee-area businesses see continued growth in the third quarter, according to the latest Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

A majority of surveyed area businesses see gains in third-quarter sales, profit and employment levels compared with year-ago levels.

Business expectations toward 2012’s third quarter were generally positive but the trend against earlier projections was somewhat mixed. Metro area businesses are somewhat more likely to see gains in profits and jobs than they were three months ago while the outlook on sales slipped from that expressed in 2012’s second quarter.

On whole, a positive outlook is forecast by most Milwaukee area businesses for both 2012’s third quarter and for the year in total. At the same time, there may be an underlying apprehension of just how robust economic growth is. The quarter-to-quarter drop in sales expectations may be one sign of this. Also, job expectations are not being met with job results.

Expectations are high, while job numbers have posted modest declines. This could mean that employers are not pulling the trigger on jobs because of economic uncertainty or it could be that actual preliminary nonfarm job numbers are actually stronger than estimated.

Sales expectations weakened in 2012’s third quarter after improving in the year’s first two quarters. Sixty-nine percent of businesses surveyed forecast higher real sales levels in the third quarter (vs. year-ago levels), down from the 76 percent and 72 percent who predicted sales gains for the second and first quarters, respectively. Currently only 12 percent of businesses see third-quarter sales declines while 18 percent expect no change.

Profit optimism gained marginally from second-quarter levels. Sixty-four percent of surveyed companies expect third-quarter profit increases vs. year-ago levels vs. the 63 percent who forecast second-quarter gains. Sixteen percent see third-quarter profit decreases (vs. 2011’s third quarter), while 20 percent see no change.

Jobs in the metro area have fallen on a year-over-year basis in each of 2012’s first five months. The pace of decline has averaged 0.4 percent through May (latest available) after posting an employment gain of 1 percent in 2011.

Despite this trend, local businesses are more likely to see future growth in jobs – by over a four-to-one margin – than they are to see employment declines. Fifty-five percent of those surveyed see third-quarter job increases (vs. year-ago levels), while only 12 percent expect decreases. The remainder (33 percent) see no change.

The current percentage forecasting employment gains ranks slightly higher than the 54 percent who forecast second-quarter job increases.
Manufacturers are significantly more optimistic than non-manufacturers on all survey questions.

Seventy-eight percent of manufacturers surveyed forecast increased third-quarter sales levels vs. 61 percent for non-manufacturers. For profits, a 72 percent to 56 percent optimism gap resulted (manufacturers vs. non-manufacturers respectively), while on employment, 64 percent of manufacturers see third quarter job gains vs. less than half (47 percent) of non-manufacturers.

With over half of 2012 complete, over three-quarters (77 percent) of businesses surveyed see calendar year real sales gains in 2012 (vs. 2011 levels). This percentage is up from the 73 percent who started the year with such expectations and outnumber the percentage currently expecting sales declines (11 percent) by a sizable margin. Twelve percent see no change in 2012 sales levels.

Profit expectations ticked slightly upward. Sixty-nine percent of businesses predict profit increases in 2012, while 15 percent see declines (the remaining 17 percent predict no change). The current percentage expecting profit increases for the year is up marginally from the 68 percent who opened 2012 expecting gains.

Job optimism among area businesses remain at a high level. Sixty percent of those surveyed see employment increases in their local operations for 2012 as a whole. Conversely, only 11 percent forecast an annual job decline. The remaining 29 percent see no change in 2012 job levels (over 2011). The year opened with 54 percent of businesses projecting job growth for the full year.

A majority of companies surveyed forecast increases in capital spending levels for 2012. Fifty-one percent of companies see capital spending levels rising in 2012 vs. year-ago levels, up from the 44 percent who saw such gains at the beginning of 2012. Presently 17 percent expect capital spending declines for the year, while 31 percent see no change.

Modest gains in national economic activity of late have kept inflationary pressures largely at bay. The largest number of businesses surveyed (49 percent) see inflation for 2012 falling in the 3 percent to 5 percent range, but a similar percent, 47 percent, see inflation of 2 percent or less. Currently only 3 percent see price inflation at 6 percent or higher.

Wage and salary expectations among area businesses remain low. Employers project an average annual increase of 2.3 percent in per employee wages and salaries over the next 12 months. The current forecast average matches the 2.3 percent rise projected three months ago.

The Business Outlook Survey, conducted by the MMAC, contains responses from 121 Milwaukee area firms, both large and small, employing more than 45,600 people.

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