MMAC outlook survey points to murky 4th quarter

Milwaukee-area businesses are largely pessimistic toward fourth quarter business activity levels, according to the latest business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

While expectations improved somewhat over recent quarters, overall expectations are still at low levels. But the early view of 2010 suggests an increased possibility of renewed growth.

The results of the fourth quarter survey gave somewhat mixed results regarding future local business prospects. On the one hand, the largest number of companies surveyed predicted fourth quarter declines in sales, profits and employment vs. year ago levels, yet some improvements were made in the current trend over both second and third quarter expectations.

The survey results imply that business pessimism has bottomed out and expectations have started to improve. Yet, to this point, improvements have been quite modest suggesting that local economic recovery and true growth – vs. just smaller declines – are still a ways off in the future.

Thirty-four percent of surveyed businesses see rising real sales levels for the fourth quarter (vs. 2008’s fourth quarter), up modestly from the 28 percent who forecast third-quarter gains. This marks the second consecutive quarter in which the percentage of those surveyed expecting quarterly sales gains improved from the previous quarter.

Currently, 49 percent see declines in fourth-quarter sales levels, while 17 percent expect no change.

Among non-manufacturers, those anticipating fourth quarter sales gains (vs. year-ago levels) outnumber those seeing declines, 41 percent to 40 percent respectively (the remainder see no change).

Conversely, manufacturers are much more likely to predict sales falls – 67 percent see fourth-quarter sales declines while only 20 percent expect increases.

A similar disparity was registered by employment size. Nearly half (46 percent) of large companies (100 or more employees) surveyed predict fourth-quarter sales gains (vs. year-ago levels), while over half (53 percent) of small companies polled forecast sales declines.

Improved profits?

Profit expectations improved from levels expressed three months earlier. Thirty-nine percent of all businesses surveyed see increases in fourth-quarter profit levels (vs. year ago levels), higher than the 26 percent who expected third-quarter profit gains. Nonetheless, the largest number (42 percent) see declines in fourth-quarter profits, while 19 percent expect no change.

The employment situation in the Milwaukee area remains weak. Job levels have fallen on a year-over-year basis in each of the last 16 months. Through August, year-to-date job averages are down 4.7 percent from 2008’s first eight months.

Survey results suggest that metro area job declines are likely to continue through the remainder of 2009. Compared to year-ago levels, over half (52 percent) of all businesses surveyed predict fourth quarter employment declines while 20 percent see increases. The remaining 28 percent foresee no change in fourth-quarter job levels. The 20 percent who see gains rank slightly higher than the 17 percent who predicted third-quarter employment increases (vs. 2008’s third quarter).

By industry, employment expectations are very similar. Over half of manufacturers (53 percent) and non-manufacturers (51 percent) predict fourth-quarter employment declines compared to year-ago levels. Conversely, non-manufacturers are somewhat more likely to predict job increases than manufacturers (23 percent to 14 percent respectively).

Expectations on future wage and salary increases rose from those expressed three months ago.

Flat wages

Among all companies surveyed, a 1.3 percent increase in per employee wages and salaries is forecast over the next 12 months vs. the 0.2 percent annual rise projected three months ago. Nonmanufacturers forecast a 1.4 percent increases, vs. a 1 percent increase in manufacturing. The variation by company size was more modest – a 1.1 percent increase for large companies vs. 1.3 percent for smaller firms.

With three quarters of the year now complete, nearly two-thirds (63 percent) of Milwaukee area businesses surveyed expect to end the year with an overall real sales decline. Twenty-six percent see 2009 sales increases and 11 percent see no change.

The first barometer for 2010 suggests that business optimism in the metro area may return in the year to come. Sixty-four percent of businesses surveyed forecast real sales gains for the coming calendar year, outnumbering those seeing sales declines (13 percent) by nearly a five-to-one margin.

Twenty-three percent see no change. A bit surprisingly, non-manufacturers and manufacturers have similar levels of optimism toward 2010. Sixty-six percent of non-manufacturers see sales gains for the year vs. 61 percent among manufacturers.

The Business Outlook Survey, conducted by the MMAC, contains responses from 142 Milwaukee area firms, both large and small, employing more than 58,800 people.

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