MMAC survey shows fading optimism

Many Milwaukee area businesses expect economic gains in the fourth quarter, although their optimism may be fading, according to the newest business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

More than two-thirds of businesses surveyed foresee sales growth in the fourth quarter (vs. the fourth quarter of 2006) and nearly half expect quarterly employment gains.

“While the largest number of companies surveyed expect sales, profit and employment increases in 2007’s fourth quarter, the level of confidence did fade somewhat,” said Bret Mayborne, the MMAC’s economic research director. “This begs the question of whether local economic growth might be expected to slow a bit in future quarters.”

Sixty-eight percent of surveyed businesses see rising real sales levels for the fourth quarter (vs. 2006’s fourth quarter), down modestly from the 71 percent who forecast third-quarter gains. While the percentage forecasting real sales increases for the coming quarter has held fairly steady in 2007 (from a high of 72 percent in 2007’s first quarter to its present 68 percent), the current percentage is the lowest positive sales expectation posted in four years (since 2003’s fourth quarter).

Currently, 13 percent see declines in fourth-quarter sales levels, while 18 percent expect no change.

Manufacturers and non-manufacturers have nearly identical sales expectations toward 2007’s fourth quarter. Sixty-nine percent of manufacturers see fourth-quarter sales gains (vs. the fourth quarter of 2006), while 68 percent of non-manufacturers see such increases.

By employment size, 71 percent of large companies (100 or more employees) surveyed see fourth-quarter sales gains vs. 66 percent among small companies.

Profit expectations dipped from levels expressed three months earlier. Fifty-nine percent of all businesses surveyed see increases in fourth-quarter profit levels (vs. year ago levels), lower than the 63 percent who expected third-quarter profit gains. Twenty percent see declines in fourth-quarter profits, while 21 percent expect no change.

Employment in the metro Milwaukee area has maintained a steady, albeit modest upward trend through the first three quarters of 2007. On a year-over-year basis, jobs gains have averaged 1.2 percent though August (latest available), translating into a net annual gain of approximately 10,000 jobs.

Businesses surveyed see job gains continuing into the year’s final quarter. The percentage of businesses forecasting fourth-quarter 2007 employment increases vs. year-ago levels (48 percent) outnumbers the proportion expecting job declines (13 percent) by a significant margin. Thirty-nine percent see no change in fourth quarter job levels. Current employment projections are down from their third-quarter levels when 55 percent of those surveyed saw year-over-year employment increases.

Both manufacturers and non-manufacturers are more likely to predict fourth-quarter employment increases than declines. A majority (52 percent) of non-manufacturers see job gains over year-ago levels, while 40 percent of manufacturers expressed such optimism. In both cases, the number of businesses expecting fourth-quarter job increases is significantly larger than those expecting job declines (13 percent among non-manufacturers and 11 percent for manufacturers).

For manufacturers, nearly half of those surveyed (49 percent) see no change in fourth-quarter employment levels.

Expectations on future wage and salary increases are somewhat lower than those expressed three months ago. Among all companies surveyed, a 3.1 percent increase in per employee wages and salaries is forecast over the next 12 months, vs. the 3.3 percent annual rise projected three months ago.

Non-manufacturers forecast larger wage and salary increases than manufacturers (3.2 percent vs. 2.7 percent, respectively), while the variation by company size was very modest.

With three-quarters of the year complete, 69 percent of all businesses surveyed forecast higher real sales levels for calendar year 2007 than those posted for 2006 as a whole. This is down from the 78 percent who saw such gains at the beginning of 2007.

Nonetheless, businesses remain largely optimistic toward 2008. Seventy-eight percent of businesses see increases in real sales levels for 2008, while only 9 percent expect declines. Thirteen percent see no change. By industry, 89 percent of manufacturers forecast calendar year 2008 sales gains, vs. 73 percent of those non-manufacturers surveyed. Eighty-two percent of larger employers predict rising sales levels in 2008, higher than the 74 percent of smaller employers who see such gains.

The Business Outlook Survey, conducted by the MMAC, contains responses from 114 Milwaukee area firms, both large and small, employing more than 60,300 people.

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