Metro area businesses remain optimistic toward future growth prospects as the largest number of businesses surveyed see gains in sales, profit and employment levels in 2015’s third quarter, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce.
The results from the third-quarter survey offer somewhat mixed results. While prospects remain at healthy levels, there has been some modest back-sliding from previous quarters. Nonetheless, survey results suggest that continuing growth is likely both in 2015’s third quarter and for the year as a whole.
Seventy-two percent of surveyed businesses see rising real sales levels for the third quarter (versus 2014’s third quarter), down from the 76 percent that forecast second-quarter gains. While sales expectations have slipped from earlier levels, the percentage of businesses predicting quarterly sales increases has reached 70 percent or better – generally indicative of a healthy business environment – in five of the past six quarterly surveys. Currently, 16 percent see declines in third quarter sales levels, while 12 percent expect no change.
Non-manufacturers are more confident of improving third-quarter sales levels than manufacturers. Seventy-seven percent of non-manufacturers see third-quarter sales gains (versus one year ago), while 64 percent of manufacturers see increases. By employment size, 75 percent of large companies (100 or more employees) surveyed see third-quarter sales gains, versus 70 percent among small companies.
Employment growth in the metro area for 2015 has lagged that posted in recent years. Nonfarm job growth has averaged 0.8 percent through 2015’s first five months, lower than the 1.2 percent and 1.5 percent gains registered in 2015 and 2014 respectively. Nonetheless, gains have been persistent in the economic recovery period, growing on a year-over-year basis in each of the past 56 months.
Survey results suggest that local employment gains are likely to continue. Nearly half (49 percent) of businesses surveyed forecast third-quarter 2015 job gains for their local operations versus year-ago levels, more than three times higher than those expecting job declines (15 percent). Job expectations fell from the previous quarter. In 2015’s second quarter, 59 percent of those surveyed forecast year-over-year employment gains.
Manufacturers and non-manufacturers have similar third-quarter employment expectations. Fifty percent of manufacturers see third-quarter job increases, while 49 percent of non-manufacturers see such gains. In both cases, the number of businesses expecting quarterly job declines (22 percent in manufacturing and 11 percent in non-manufacturing) is significantly smaller than those expecting job gains.
Like quarterly sales expectations, profit expectations dipped for 2015’s third quarter. Sixty-five percent of all businesses surveyed see increases in third-quarter profit levels (versus year ago levels), down from the 71 percent that predicted second-quarter gains. Currently, 14 percent see declines in third-quarter profits, while 22 percent expect no change.
Calendar year 2015 expectations
Sales expectations for calendar year 2015 have become more tempered as the year has moved forward. At the year’s midpoint, 72 percent of all businesses surveyed see real sales levels increasing for 2015 as a whole, down from the 83 percent who forecast an annual real sales gain at 2015’s beginning. Currently, 14 percent expect sales declines and 14 percent predict no change.
Profit expectations followed a similar path. Sixty-six percent of businesses predict profit increases in 2015, while 15 percent see declines (the remaining 19 percent predict no change). The current percentage expecting profit increases for the year is down ten percentage points from the 76 percent who opened 2015 expecting profit gains.
Employers expect job gains for 2015 as a whole. More than half (55 percent) of those surveyed forecast employment increases in 2015 for their local operations, outnumbering those who expect job declines (16 percent) by a wide margin. Twenty-nine percent see no change in employment levels.
Current calendar year expectations are down from forecasts made at 2015’s start, when 63 percent predicted 2015 job gains and only 5 percent saw declines.
Employers are now slightly more optimistic toward capital spending plans than at the beginning of 2015. A majority of employers (51 percent) see annual capital expenditure increases in 2015, while 32 percent see no change. Seventeen percent expect capital spending declines for the year. The percentage seeing increases now is up from the 47 percent that saw annual capital expenditure gains at the beginning of 2015.
Inflation expectations remain moderate. More than half of those surveyed (54 percent) see price inflation falling in the 0 percent to 2 percent range for 2015. Forty-one percent forecast inflation of 3 percent to 5 percent, while only 4 percent see inflation of 6 percent or higher.
Expectations toward wage and salary increases pushed upward a bit. A 2.5 percent increase in per employee wages and salaries is projected over the next 12 months, up from the 2.3 percent increase forecast three months ago. Smaller increases (up 1.9 percent) are projected by manufacturers surveyed, compared to the 2.8 percent rise forecast by non-manufacturers. A smaller variation was posted by employer size. Larger employers see a 2.3 percent gain versus the 2.7 percent increase predicted for smaller employers.
The Business Outlook Survey, conducted by the MMAC, contains responses from 94 Milwaukee-area firms, both large and small, employing more than 28,800 people.
-Bret Mayborne is the economic research director at the Metropolitan Milwaukee Association of Commerce.
