Optimism improves among MMAC members

Business optimism improved in 2013’s second quarter following the tepid results posted in this year’s first quarter, according to the latest Business Outlook Survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

Fifty-seven percent of businesses surveyed see sales increases in 2013’s second quarter, 53 percent see profit gains and 46 percent expect job gains vs. year-ago levels.

There remains a healthy dose of uncertainty built into business expectations for the year’s second quarter. On the positive side, quarterly expectations rose from the modest levels expressed for 2013’s first quarter but overall levels of optimism remain low relative to previous growth periods.

The current trend in sales expectations marks a departure from the recent pattern. The percentage of businesses seeing positive real year-over-year sales growth in 2013’s second quarter rose eight percentage points from first quarter levels. This rise comes on the heels of a 27 percentage point drop in sales optimism posted over the previous three quarters.

Currently, 57 percent of all businesses surveyed predict real sales gains in the second quarter (vs. year-ago levels), 16 percent see sales declines and 27 percent expect no change. The percentage predicting second-quarter growth is up from the 49 percent who forecast first-quarter gains. While the upturn in outlook is positive, the overall level of optimism is lower than typical at this stage of the business cycle. Historically, 65 percent or more of businesses surveyed see quarterly sales gains in a typical growth environment.

By industry, non-manufacturers are more likely to see second-quarter sales gains than manufacturers. Sixty-four percent of non-manufacturers see second-quarter growth while 48 percent of manufacturers see such gains. The difference in expectations among large employers (100 or more employees) and small employers was less notable. Fifty-nine percent of large employers forecast second-quarter sales gains vs. 55 percent for small employers.

Regarding profits, 53 percent of all Milwaukee area businesses see higher profits in 2013’s second quarter (vs. year-ago levels), up from the 44 percent who forecast first-quarter, 2013 profit gains. Currently 20 percent predict profit declines while 26 percent see no change. The upturn in the profit forecast follows consecutive quarters of weakened expectations.

After recent revisions to metro area job figures, the metro area has now recorded 29 consecutive months of year-over-year employment increase (through February, 2013), but gains have slowed in recent months. Nonetheless area businesses see continuing job growth in 2013’s second quarter.

Forty-six percent of businesses surveyed expect second-quarter employment gains (vs. year-ago levels), nearly four times higher than the 12 percent who predict job declines. Second-quarter expectations rank higher than the 39 percent of businesses who forecast first-quarter gains and closely match what is typical in an economic expansion (when 40 percent or more typically predict quarterly job growth).

While the manufacturing sector largely led 2012 job growth there may be more balance in 2013’s second-quarter employment trend. Forty-nine percent of non-manufacturers predict second-quarter job gains (vs. year-ago levels), somewhat higher than the 43 percent of manufacturers who see growth. By employment size, large employers – with 53 percent seeing second-quarter 2013 gains – are more likely to predict employment growth than small employers – where 39 percent see gains.

For the second consecutive quarter expected future wage and salary gains have modestly increased. On average, the change in per person employee wages and salaries is forecast to rise 2.4 percent over the next 12 months, above the 2.2 percent annualized increase predicted three months ago.

Optimism for the calendar year is somewhat stronger than the quarterly forecast. Currently, 67 percent of businesses surveyed see real sales gains for 2013 as a whole, 9 percent see declines while 24 percent see no change. The percentage currently predicting an annual sales increase ranks higher than that expressed three months ago when 61 percent of those surveyed predicted a 2013 sales gain.

The Business Outlook Survey, conducted by the MMAC, contains responses from 133 Milwaukee area firms, both large and small, employing more than 65,600 people.

Bret Mayborne is the Metropolitan Milwaukee Association of Commerce economic research director.

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