Milwaukee-area businesses expressed mixed results regarding economic prospects for 2013’s third quarter, according to the latest Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC). Expectations towards third quarter sales and profits improved over previous quarters while employment optimism fell slightly from second-quarter levels.
Expectations on sales and profits levels have improved since the year’s first quarter but overall levels of optimism expressed for 2013 rank lower than in 2011 and 2012.
As the year moves forward, expectations get closer to what we have seen in recent years but the overall forecast remains somewhat tepid, particularly on jobs.
The survey results suggest that metro area businesses are more optimistic now than they were at the beginning of 2013, but are not as upbeat as in recent years. The most likely result is a local economy that moves forward through the remainder of 2013 but does so at a modest pace.
Sales expectations improved in 2013’s third quarter rising from levels posted in the year’s first two quarters. Sixty-seven percent of businesses surveyed forecast higher real sales levels in the third quarter (vs. year-ago levels), up from the 57 percent and 49 percent who predicted sales gains for 2013’s second and first quarters, respectively. Currently 16 percent of businesses see third-quarter sales declines while 17 percent expect no change.
Likewise, profit optimism trended upward. Sixty percent of surveyed companies expect third quarter profit increases vs. year-ago levels compared to the 53 percent who forecast second-quarter gains. Eighteen percent see third-quarter profit decreases (vs. 2012’s third quarter), while 22 percent see no change.
The job situation in the metro area has softened in recent months. The unemployment rate has ticked upward (from year-ago levels) while year-over-year growth in nonfarm employment has averaged only 0.4 percent over the past three months, less than half the growth rate posted in the six months previous to that.
For the second time in three quarters, the largest number of businesses surveyed see no change in future employment levels. Those projecting third-quarter job increases outnumber those forecasting declines by a healthy margin (42 percent vs. 13 percent, respectively), but the largest number, 45 percent, see no change in job levels. Survey results suggest that businesses are slightly less optimistic toward job prospects than three months ago. The current percentage forecasting employment gains dipped from the 46 percent who forecast second-quarter job increases.
By industry, manufacturers are more optimistic than non-manufacturers on job prospects. Forty-seven percent of manufacturers see third-quarter job gains while 37 percent of non-manufacturers see such gains. By size, both large (100 or more employees) and small employers have similar job expectations (43 percent see increases vs. 41 percent respectively).
Predicted wage and salary trends also suggest a weaker metro area job market. Per employee wages and salaries are expected to increase at an average rate of 2.2 percent over the next 12 months, down from the 2.4 percent increase forecast three months ago.
Expectations for 2013 as a whole closely align with third-quarter forecasts. Two-thirds (66 percent) of businesses surveyed see calendar year real sales gains in 2013 (vs. 2012 levels). This percentage is up from the 61 percent who started the year with such expectations and outnumber the percentage currently expecting sales declines (18 percent). Sixteen percent see no change in 2013 sales levels.
Profit expectations moved strongly upward from the year’s start. Sixty-one percent of businesses now predict profit increases in 2013, up from the 48 percent who opened 2013 with such expectations. Currently, 21 percent see profit declines for the year while the remaining 18 percent predict no change.
Regarding jobs, employers are more likely to predict calendar year job gains than any other possibility. Forty-six percent of those surveyed see employment increases in their local operations for 2013 as a whole. Conversely, only 15 percent forecast an annual job decline. The remaining 39 percent see no change in 2013 job levels (over 2012). The year opened with marginally lower job expectations when 43 percent of businesses projected job growth for the full year.
Capital spending plans remain largely tempered. Companies seeing capital spending increases (33 percent) in 2013 outnumber those predicting declines (21 percent), but the largest percentage (46 percent) see no change in capital spending plans. Those currently expecting 2013 increases closely match the 34 percent who forecast such gains at the beginning of 2013.
Inflation expectations, already low at the beginning of 2013, have notched downward over the year’s first six months. Currently a majority of businesses (58 percent) sees annual inflation of 2 percent or less. Six months ago, over half of those surveyed (57 percent) saw 2013 price inflation in the 3 percent to 5 percent range. In both surveys nearly all those surveyed forecast inflation of 5 percent or less.
The Business Outlook Survey, conducted by the MMAC, contains responses from 131 Milwaukee area firms, both large and small, employing more than 50,750 people.
Bret Mayborne is the MMAC’s economic research director.