MMAC Outlook Survey bullish for 2014

Metro area businesses start 2014 with a strong expectation of growth, according to a quarterly Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce. Seventy-five percent of businesses surveyed see sales increases in 2014, 65 percent forecast profit gains and more than half expect job growth in the calendar year.

This year sets up with stronger business optimism than the lackluster survey expectations expressed for 2013.

Survey results suggest a healthy growth environment in 2014, with an opportunity for greater economic strength as the year moves forward. By most measures, expectations for 2014 are as strong as they have been since 2012’s third quarter, as businesses shake off the sluggishness that hung over 2013.

Optimism toward 2014 exceeds expectations expressed one year ago toward calendar year 2013. Three-quarters of businesses surveyed forecast higher real sales levels in 2014 – higher than the 61 percent who predicted annual gains at the beginning of 2013. Currently, only 9 percent of those surveyed predict 2014 sales declines, while 16 percent see no change.

Non-manufacturers are more likely to see 2014 sales gains than manufacturers. Eighty-four percent of non-manufacturers see sales increases for the New Year, while only 10 percent see decreased sales levels. Conversely, two-thirds of manufacturers predict sales gains, while 8 percent expect declines. Expectations were more balanced by firm size. Seventy-four percent of small employers (less than 100 employees) see 2014 sales gains vs. 77 percent among large employers.

A healthy profit picture is also forecast by metro area businesses. Sixty-five percent of all employers surveyed see profit level increases in 2014. Thirteen percent expect profit declines for the year and 22 percent expect no change. Those anticipating profit growth in 2014 surpass the 48 percent who forecast 2013 profit gains one year ago.

Regarding capital spending plans, 45 percent of companies surveyed forecast a rise in capital expenditures for the year. Seventeen percent see capital spending declines and 38 percent expect no change. The percentage currently predicting increases is up from the 34 percent who opened 2013 expecting capital spending gains.

The jobs recovery started in October 2010 and has posted continuous year-over-year growth for 38 consecutive months. Recent growth levels, though, have effectively ground to a halt in recent months. Jobs in November 2013 (latest available) rose only 0.1 percent vs. year-ago levels and have averaged 0.3 percent over the past three months. Survey results suggest healthier results in 2014. Fifty-nine percent of all businesses surveyed expect job gains in their local workforces in 2014, outnumbering those predicting declines (7 percent) by more than an eight-to-one margin. Current results stand in contrast to the 43 percent of companies that expected employment growth at the start of 2013.

Current expectations within the non-manufacturing sector are particularly strong. Two-thirds of non-manufacturers predict job growth in calendar year 2014, while only 5 percent of those surveyed see employment decreases in the coming year.

The lackluster overall job growth of 2013 was partly due to the onset of manufacturing job declines. Manufacturing employment rose 2.2 percent in 2012 but is likely to post a 1 percent decline in 2013. Manufacturing expectations for 2014 are somewhat mixed. A majority of manufacturers surveyed see job growth in 2014 and those seeing growth outnumber those seeing declines by a wide margin (51 percent vs. 9 percent), but non-manufacturers are significantly more optimistic.

Forecast wage and salary increases reached the highest level since 2008’s fourth quarter. Presently the average change in per person employee wages and salaries is forecast to rise 2.6 percent over the next 12 months, up from the 2.3 percent annualized increase predicted three months ago.

Inflationary pressures remain moderate. The largest percentage (52 percent) of companies surveyed see inflation falling in the 0 percent to 2 percent range, while 46 percent expect price increases of 3 percent to 5 percent. Only 3 percent see price gains of 6 percent or higher.

For the first quarter, sales expectations rebounded from weak fourth quarter 2013 results. Sixty-seven percent of those surveyed expect first quarter sales gains (vs. 2013’s first quarter), 10 percent see sales declines, and 23 percent expect no change. The current percentage predicting a quarterly sales increase is up from the 58 percent who forecast fourth quarter 2013 sales gains (vs. 2012’s fourth quarter) three months ago.

Unlike sales and employment forecasts, there was no positive bounce in first quarter profit optimism. Fifty-four percent of Milwaukee area businesses see higher profits for the first quarter (vs. year-ago levels), down from the 56 percent who forecast fourth quarter 2013 profit gains. Currently 17 percent predict profit declines while 29 percent see no change.

Quarterly employment expectations reached the highest level of optimism since 2012’s third quarter. Forty-eight percent of all businesses surveyed predict first quarter 2014 job gains for their local operations (vs. 2013’s first quarter), up from the 38 percent of companies that forecast year-over-year gains in 2013’s fourth quarter. Companies are more than three times more likely to forecast employment gains for 2014’s first quarter than declines (13 percent). Thirty-nine percent see no change.

Non-manufacturers expressed the greatest likelihood of expanding job levels in the first quarter. Fifty-six percent of non-manufacturers surveyed expect higher employment totals in 2014’s first quarter (vs. one-year ago), higher than the 38 percent of manufacturers who expect such gains.

The Business Outlook Survey, conducted by the MMAC, contains responses from 115 Milwaukee area firms, both large and small, employing more than 42,400 people.

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