MMAC members optimistic about 2017

But expect slow start to the year

Downtown Milwaukee

Milwaukee-area businesses expressed measured optimism toward 2017, according to the annual Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce. Seventy-three percent of those businesses surveyed see sales increases, 71 percent predict profit gains and 61 percent expect employment growth in 2017 for their local operations.

Metro businesses are generally optimistic toward future business prospects, but expectations suggest a slow start to 2017. Overall, expectations for 2017’s first quarter are significantly lower than those expressed for the calendar year as a whole.

Mayborne
Mayborne

Sales expectations among Milwaukee-area businesses have been consistently moderate over the course of the past year. Seventy-three percent of those surveyed expect increases in real sales levels in 2017. Only 7 percent predict sales declines, while the remainder (21 percent) see no change. The proportion predicting 2017 sales growth is similar to both the 75 percent who began 2016 predicting sales increases for that year as a whole, and the 72 percent who forecast 2017 sales gains just three months ago.

Sales optimism is strongest among manufacturers; 77 percent of manufacturers surveyed predict sales growth in 2017, versus 70 percent among non-manufacturers.

Expectations by employer size are more similar. Seventy-four percent of small employers (with fewer than 100 employees) see 2017 sales gains, while 71 percent of large employers have such expectations.

Manufacturers are also more likely to predict rising profit levels. Eighty-two percent of manufacturers see 2017 profit increases, versus 65 percent among non-manufacturers. Overall, 71 percent of all employers surveyed see profit increases in 2017. Conversely, only 9 percent see declining profit levels. The remaining 20 percent see no change.

A moderate growth trend is expected for capital spending plans among Milwaukee employers. The largest number (42 percent) of those surveyed see increased capital spending levels for local operations in 2017. Eighteen percent see capital spending decreases, while 39 percent see no change.

The employment trend in the metro area was on a bit of a roller coaster ride throughout 2016, from slow year-over-year growth over 2016’s first three quarters to employment declines posted in the two most recent months available (October and November). To date, jobs in 2016 are up a modest 0.6 percent, down from the 1.1 percent growth posted in 2015. Nonetheless, businesses overall remain confident that job growth will continue into 2017. A strong majority (61 percent) of businesses expect increases in their local workforces in 2017, with those seeing job increases outnumbering those predicting declines (6 percent) by more than a 10-to-one margin. Thirty-three percent see no change.

Despite a flat manufacturing job trend in 2016, manufacturers are more likely than non-manufacturers to predict 2017 job gains. Currently, 68 percent of manufacturers predict job increases during calendar year 2017, higher than the 57 percent of non-manufacturers who see such gains. By comparison, 49 percent of manufacturers forecast employment increases at the beginning of 2016.

Increases in wages and salaries for area workers in 2017 are expected to be slightly higher than those projected in 2016. The average change in per person employee wages and salaries is forecast to rise 2.9 percent over the next 12 months, up from the 2.5 percent annual increase projected at the opening of 2016.

Downtown Milwaukee
Downtown Milwaukee

Price inflation accelerated slightly in 2016 after a flat 2015 trend. Increases in consumer prices nationally are likely to average 1.2 percent in 2016, up from the 0.1 percent rate recorded in 2015. Businesses surveyed expect inflation to remain moderate in 2017.  Forty-one percent see inflation falling in the 0 percent to 2 percent range, while the majority, 55 percent, expect price increases of 3 to 5 percent. Only 5 percent of those surveyed predict price gains of 6 percent or higher.

First quarter expectations

Businesses are less optimistic toward 2017’s first quarter than they are for the year as a whole. While 73 percent of those surveyed predict sales increases for 2017 as a whole, only 62 percent expect first-quarter sales gains (versus 2016’s first quarter). Seven percent see first-quarter sales declines and 32 percent expect no change. The percentage forecasting a quarterly sales increase is up marginally from the 63 percent who predicted fourth-quarter 2017 sales gains (versus year ago levels).

Sales growth in the manufacturing sector may gather momentum as the year moves forward. The 77 percent of manufacturers expecting sales gains for the year as a whole is substantially higher than the 63 percent who forecast sales gains in 2017’s first quarter (versus year-ago levels). Sixty-one percent of non-manufacturers see first-quarter sales increases.

A majority (58 percent) of all companies surveyed see increased profit levels in 2017’s first quarter (versus 2016’s first quarter). Thirteen percent expect profit declines and 28 percent predict no change. The percentage expecting profit increases is consistent with the 57 percent who forecast fourth-quarter 2016 profit gains.

Conversely, employment expectations are somewhat weaker now than they were three months ago. Forty-six percent predict first-quarter job gains for their local operations (versus 2016’s first quarter), down from the 56 percent who forecast fourth quarter 2016 job increases (versus year-ago levels). Currently, 8 percent predict job declines and 46 percent see no change.

By industry, 50 percent of manufacturers see employment increases in the first quarter, (versus 2016’s first quarter) versus 44 percent among non-manufacturers surveyed. A similar gap was registered by company size, where 50 percent of small employers see first-quarter job gains versus 41 percent for large employers.

The Business Outlook Survey, conducted by the MMAC, contains responses from 121 Milwaukee-area firms, both large and small, employing more than 30,000 people.

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

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