MMAC members still projecting some growth

Business growth is projected for Milwaukee area businesses in 2011’s fourth quarter, with a majority of those businesses surveyed seeing gains in sales, profit and employment over year-ago levels, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

However levels of quarterly optimism have slipped from their third-quarter levels.

While the largest number of businesses see sales and profit gains in 2011’s fourth quarter, the level of optimism is somewhat under historic thresholds of optimism – levels that would tend to suggest a strong growth environment. Thus some measure of local growth will likely continue, but survey results suggest that any significant economic acceleration is unlikely in the short run.

There have been some positive trends in 2011, particularly in manufacturing, but for the most part the level of growth we have had has made only a small dent in the unemployment rate. These survey results suggest that the overall trend is unlikely to change much in 2011’s fourth quarter. Ultimately, in order for both the local and national economies to truly recover from the 2008-2009 recession, economic growth has to step-it-up a notch. Unfortunately, at least for the fourth quarter these results suggest a more-of-the-same trend. There may be more hope for 2012 as businesses expressed solid optimism for the coming year.

Sales expectations of 70 percent or better typically signal a solid growth environment. Fourth-quarter sales results fell below this threshold for the first time this year. Sixty-four percent of all businesses surveyed see real sales gains in 2011’s fourth quarter (vs. year-ago levels), down from the 70 percent who forecast third-quarter sales increases. Ten percent predict fourth-quarter sales declines (vs. 2010’s fourth quarter) while 26 percent expect no change.

Manufacturers are more likely to predict sales gains than non-manufacturers. Sixty-nine percent of manufacturers see fourth-quarter sales gains (vs. 2010’s fourth quarter), while 61 percent of non-manufacturers see such increases. Expectations varied little by firm size – 65 percent of large companies (100 or more employees) surveyed see fourth-quarter sales gains vs. 63 percent among small companies.

Like sales, profit expectations dipped slightly in 2011’s fourth quarter. Presently, 59 percent of all surveyed businesses predict fourth-quarter profit gains (vs. 2010’s fourth quarter), lower than the 62 percent that saw third-quarter increases (vs. year-ago levels). Twenty-two percent see profit declines in 2011’s fourth-quarter and 19 percent see no change. The current level forecasting profit increases is slightly below the 60 percent threshold of optimism that has applied historically to profits expectations.

Employment growth in the metro area improved from mid-2010 to April of this year – from 0.4 percent in July, 2010 (year-over-year) to April, 2011’s 2.9 percent gain – but job growth has flattened out since. Year-over-year gains stood at 2.5 percent in August (latest available). Nonetheless metro area gains rank higher than the 1 percent growth posted in August nationally.

Results from the business outlook survey suggest that local job gains will continue through the remainder of 2011. Over one half of employers surveyed (53 percent) expect fourth-quarter job increases vs. year-ago levels outnumbering those projecting declines (10 percent), by a five-to-one margin. The remaining 37 percent see no change. Expectations fell a bit from third-quarter levels when 57 percent forecast quarterly gains (year-over-year), but remain above the 40 percent threshold of optimism for employment expectations.

Metro area job gains have been particularly strong in the manufacturing sector with a 4.2 percent year-over- year gain posted in August. Manufacturing strength is expected to continue into the fourth quarter.

Nearly two-thirds (65 percent) of manufacturers surveyed expect gains in fourth-quarter job levels for their local operations, while only 45 percent of non-manufacturers see such gains. By firm size, large employers (54 percent) and small employers (51 percent) have similar job growth expectations.

A strengthened job trend has led to slightly higher wage and salary expectations. Employers project an average annual increase of 2.4 percent in per employee wages and salaries over the next 12 months. The forecast average is up marginally from the 2.3 percent rise projected three months ago.

Variations by industry or firm size were relatively small.

Calendar year sales expectations have held steady as the year has moved forward. With three quarters of the year complete, 74 percent of businesses surveyed see real sales levels increasing for 2011 as a whole. This forecast is down marginally from the 75 percent who saw calendar year sales gains in June and the 76 percent who predicted annual gains at the beginning of 2011. Currently only 8 percent of businesses expect sales declines for the year as a whole, while 18 percent predict no change.

Despite the lackluster quarterly expectations, area businesses expressed optimism for the 2012 calendar year. Seventy-nine percent of metro area businesses surveyed expect higher real sales levels in 2012 (vs. 2011) – slightly higher than the 74 percent who currently predict 2011 sales growth and significantly higher than the 56 percent who forecast future annual sales gains one year ago. Early projections for 2012 indicate an even distribution of optimism by industry and firm size.

Seventy-nine percent of non-manufacturers see 2012 sales gains vs. 78 percent among manufacturers.

A similar pattern shows for smaller employers vs. large employers (79 percent see sales gains vs. 78 percent respectively).

The Business Outlook Survey, conducted by the MMAC, contains responses from 145 Milwaukee area firms, both large and small, employing more than 60,100 people.

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