MMAC survey cites weakened economic outlook

Southeastern Wisconsin businesses’ expectations for sales, profits and employment levels continue to slide, according to the latest Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC). Local employer economic expectations for the second quarter are down from expectations expressed in the first quarter.

“At present, metro area businesses are on the fence regarding whether they expect near-term business growth,” said Bret Mayborne, the MMAC’s economic research director. “From a historical prospective, current expectations are not at levels that would indicate being in a recession, but we are sliding down a slippery slope towards those levels.”

Fifty-eight percent of the surveyed businesses see rising real sales levels for the second quarter (vs. the second quarter of 2007), down from the 62 percent who forecast first-quarter gains. Thirteen percent see declines in second-quarter sales levels, while 29 percent expect no change.

The percentage expecting quarterly sales growth (vs. year-ago levels) has fallen in seven of the past eight quarters and has approached expectations normally associated with recessionary periods (50 percent or less), Mayborne said.

“The billion dollar question is whether the region is in a recession or not. In my mind the outlook survey results do not conclusively say. Many times a recession is not obvious until it has already begun and that could be the case now. But these survey results taken together with the trend in many local economic indicators suggest that the region is very close to or already in a mild recession.” Mayborne said. “One of the more interesting results of the survey is the relative optimism of the manufacturing sector. This could be due to a couple of factors. One, manufacturing has not performed all that well in recent years, thus in a sense, the sector has no where to go but up. Secondly, the falling value of the dollar makes domestically produced goods more attractive for export.”

Sales projections among manufacturers – where 69 percent of those surveyed see second-quarter sales gains vs. year ago levels – were notably stronger than those expressed among non-manufacturers, where only 52 percent see such gains.

Likewise, larger employers (100 or more employees) expressed greater confidence toward future sales growth (63 percent see second-quarter gains) than smaller employers (54 percent see such gains).

Less than half of area businesses surveyed expect rising profits for 2008’s second quarter. Only 44 of businesses surveyed see increases in second-quarter profit levels (vs. year ago levels), vs. the 55 percent who forecast first-quarter profit gains. Twenty percent see declines in second-quarter profits, while 36 percent expect no change.

Revised employment numbers for 2007, recently released by the Wisconsin Department of Workforce Development, indicate that job growth slowed in 2007, with an average gain of 0.8 percent for the year, down from the 1.2 percent growth rate of 2006. Furthermore, the employment trend in the metro area has deteriorated in recent months, with four consecutive months of year-over-year job declines posted between last November and February.

A 2.6-percent increase in per-employee wages and salaries is expected over the next 12 months in the region, lower than the 3.1-percent rise projected in the first quarter.

Expectations for the year 2008 as a whole have been revised downward since the beginning of the year. Three months into 2008, 64 percent of businesses surveyed expressed confidence in rising sales levels for 2008 as a whole, down modestly from the 69 percent who saw such gains at the beginning of 2008.

The Business Outlook Survey contains responses from 107 Milwaukee-area firms, employing more than 61,500 people.

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