Although many southeastern Wisconsin businesses are optimistic about the remainder of the year, their optimism is diminishing. That’s the bottom line from the latest Metropolitan Milwaukee Association of Commerce (MMAC) Outlook Survey.
In the survey, which is first reported each quarter exclusively in Small Business Times, 71 percent of businesses predicted rising real sales levels for their companies in the third quarter vs. 2004’s third quarter. That figure is down from the 82 percent of businesses who forecast second-quarter increases.
Profit expectations declined for the third quarter as well. Sixty-three percent of the businesses that responded are expecting increased third-quarter profits, which is down from the 70 percent that expected increases in profit for the second quarter.
"The decline is due to the fact that we have moved past the heightened growth period coming out of the recession," said Bret Mayborne, economic research director of the MMAC. "We’re now seeing growth come down to a level that can be sustained for a longer period of time. Right now, I see no evidence that continuation of growth is in jeopardy.
"I don’t think we’ve reached a turning point yet. When over 70 percent of businesses are still expecting growth (in sales), it’s easy to say that the economy is strong for a period of time. If it continued to fall, say to below about 60 percent, that could indicate some change."
More than 70 percent of companies have projected increasing sales in the past seven quarterly surveys. For the coming quarter, 7 percent of companies predict declines in sales, while 11 percent expect declines in third-quarter profits.
Manufacturing represented a bright spot in the MMAC survey. Seventy-seven percent of manufacturing firms expect an increase in third quarter sales, compared with 69 percent of non-manufacturing companies.
"Manufacturing is coming off a rough period, so it has experienced a bigger bounce than other sectors," said Mayborne. "There is a greater level of optimism in manufacturing with good cause, it isn’t just hope."
Mayborne said that manufacturing is behind the cycles other sectors are experiencing, meaning it could experience a slight decline in the future.
A similar separation in growth expectations was seen by company size. Seventy-five percent of large companies (100 employees or more) predicted growth in sales, vs. 67 percent of small companies.
The job market in Milwaukee is still healthy, according to the survey. Fifty-two percent of the businesses predicted increases in employment for the third quarter. This number has risen from the 50 percent of businesses who saw second-quarter increases in employment. This is the fourth consecutive quarter in which 50 percent or more of the businesses surveyed predicted employment growth.
"In general, expectation levels have become less enthusiastic around sales and profits, but employment and capital expenditures turned up, so we have a mixed bag altogether. In the bigger picture, levels of expectations are indicative of healthy, stable growth," Mayborne said.
Currently, 51 percent of companies surveyed see annual capital expenditures increases for 2005. Forty percent see no change in capital expenditures, while only 10 percent expect decreases.
The MMAC’s Business Outlook Survey contains responses from 126 firms in the Milwaukee area, both large and small, with a total employment of more than 73,000 people.
July 8, 2005, Small Business Times, Milwaukee, WI
