MMAC members project more growth

Milwaukee-area businesses are optimistic about future economic growth, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

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

Taken as a whole, business expectations for the third quarter are similar to what was expressed in 2011’s first two quarters. The exception to this was for future employment levels where a significant improvement was forecast over second-quarter levels. Manufacturers were particularly optimistic toward 2011’s third quarter.

The third quarter outlook survey is a bit of a mixed bag but mostly positive. Expectations are at healthy levels but it would have been nice to build a little momentum rather than hold ground. While this is true overall, there was positive momentum built in employment expectations and among manufacturers. If there is a bit of concern, it is with profit expectations with a hint of deterioration in both the quarterly and annual expectations, but it would be too early to say whether this is a long-term concern.

Sales expectations for the third quarter slipped marginally after posting improvement in 2011’s first two quarters. Seventy percent of businesses surveyed forecast higher real sales levels in the third quarter (vs. year-ago levels), down slightly from the 73 percent and 71 percent who predicted sales gains for the second and first quarters respectively. Currently only 10 percent of businesses see third quarter sales declines while 20 percent expect no change.

Like sales, profit optimism largely held steady for the third quarter. Sixty-two percent of surveyed companies expect profit increases vs. year-ago levels, matching the percentage who forecast second-quarter profit gains. On a cautionary note, negative profit expectations rose over second quarter levels. Eighteen percent see third-quarter profit decreases (vs. 2010’s third quarter) up from the 11 percent who saw second-quarter profit declines.

Through May, jobs in the metro area have risen on a year-over-year basis for 11 consecutive months. From a 0.4 percent increase in July, 2010 at the start of the jobs recovery to the 2.4 percent increase posted in May, 2011, the most recent data available. Results of the business outlook survey suggest that the job gains are likely to continue, perhaps at an increased rate. Employers expecting job increases outnumber those projecting declines by over a six-to-one margin. Fifty-seven percent of those surveyed see third-quarter job increases (vs. year-ago levels), while only 9 percent expect decreases. The remainder (35 percent) sees no change. The current percentage forecasting employment gains ranks higher than the 48 percent who forecast second-quarter job increases.

On all survey questions asked, manufacturers were significantly more optimistic than non-manufacturers.

On sales, 80 percent of manufacturers surveyed forecast increased third-quarter sales levels vs. 64 percent for non-manufacturers. For profits a 78 percent to 54 percent optimism gap resulted (manufacturers vs. non-manufacturers respectively), while, regarding employment, 70 percent of manufacturers see third-quarter job gains while less than half (49 percent) of non-manufacturers predict employment increases (vs. year-ago levels).

With a full six months now under their belts, three-quarters of business surveyed see calendar year real sales gains in 2011 (vs. 2010 levels). This percentage closely matches the 76 percent who started the year with such expectations and outnumber the percentage currently expecting sales declines (11 percent) by nearly a seven-to-one margin. Fourteen percent see no change in 2011 sales levels.

Profit expectations slipped sharply over the course of 2011’s first half. Fifty-nine percent of businesses predict profit increases in 2011, while 23 percent see declines (the remaining 17 percent predict no change). The current percentage expecting profit increases for the year is down from the 67 percent who opened 2011 expecting gains.

Employment expectations for the year closely match those expressed for 2011’s third quarter.

Over half (57 percent) of those surveyed see employment increases in their local operations for 2011 as a whole. Conversely, only 8 percent forecast an annual job decline. The remaining 35 percent see no change in 2011 job levels (over 2010).

The largest number of companies surveyed forecast increases in 2011 capital spending levels. Forty-eight percent of companies see capital spending levels rising in 2011 vs. year-ago levels, up slightly from the 46 percent who saw such gains at the beginning of 2011. Presently 11 percent expect capital spending declines for the year, while 41 percent see no change.

Price inflation is expected to push modestly upward vs. forecasts made at the beginning of 2011.

A majority of businesses (56 percent) see inflation for 2011 falling in the 3 percent to 5 percent range, but an increased number now see inflation of 6 percent or higher. Currently 13 percent see price inflation at this level, over double the 6 percent who had similar expectations at the beginning of 2011. Nonetheless, a large percentage of those surveyed (31 percent) still see price inflation of 2 percent or less for 2011.

Wage and salary expectations have risen to its highest level in nearly three years. Employers project an average annual increase of 2.3 percent in per employee wages and salaries over the next 12 months. The forecast average is up modestly from the 2.1 percent rise projected three months ago and was last surpassed by the 2.9 percent increase forecast in 2008’s fourth quarter.

The Business Outlook Survey, conducted by the MMAC, contains responses from 115 Milwaukee area firms, both large and small, employing more than 61,250 people.

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