Optimism rising among MMAC members

Business confidence among Milwaukee area businesses gathered momentum in 2010’s second quarter, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC).

Optimism toward second-quarter sales, profit and job levels increased from those expressed in 2010’s first quarter.

One year ago business optimism was at the lowest point it has been in decades as the economic downturn hit full force. Since then confidence has risen over four consecutive quarterly surveys, with particularly strong gains posted in each of the past two quarters.
The results of the survey represent a significant step toward a healthy local economic environment, but a note of caution is necessary. The current expectation for future economic growth is based on a very low starting point – last year’s historically weak second quarter. The true test will come in future expectations and will go a long ways toward determining whether these short-term improvements have any staying power.
Sixty-four percent of surveyed businesses see rising real sales levels for the second quarter (vs. 2009’s second quarter), up from the 48 percent who forecast first-quarter gains. Only 10 percent see declines in second-quarter sales levels, while 26 percent expect no change. The percentage expecting quarterly sales increases (vs. year-ago levels) has risen by 30 percentage points in just two quarters, from 34 percent in 2009’s fourth quarter, to the present 64 percent.
Current expectations mark a sharp departure from those expressed one year ago. In 2009’s second quarter, sales expectations reached historically low levels, with only 22 percent of those surveyed expecting second-quarter gains. Year-over-year sales forecasts have ratcheted up in each of the subsequent quarterly surveys, with those now expecting quarterly sales gains (64 percent) numbering nearly three times higher than one year ago.
By employment size, larger employers (100 or more employees) are somewhat more optimistic than smaller employers on future sales. Sixty-eight percent of large employers expect second quarter sales increases vs. the 60 percent seeing gains among smaller employers.
By broad industry, expectations are quite similar. Sixty-five percent of non-manufacturers see higher second quarter sales levels, while 63 percent of manufacturers see such gains.
Businesses are similarly optimistic toward future profits. Sixty-one percent of area businesses surveyed expect profit gains for 2010’s second quarter, up from the 51 percent who forecast first quarter profit gains. Currently only 17 percent of businesses surveyed see falling second-quarter profit levels (vs. year ago levels), and 22 percent see no change.
The metro Milwaukee area posted a sharp 5-percent decline in jobs for 2009, the sharpest annual drop posted in the 1968-to-2009 period (for which comparable numbers are available). Employment declines have continued into 2010 with year-over-year decreases of 4.6 percent and 3.8 percent in January and February, respectively, but these declines are down significantly from the peak decline of 6.3 percent registered in August of 2009 (vs. August, 2008).
Survey results suggest that continuing progress will be made in the future employment trend. Companies expecting second-quarter job increases (32 percent) outnumber those seeing declines (19 percent) by a significant margin. In addition, the percentage forecasting second-quarter job increases is up from the 25 percent who predicted gains in 2010’s first quarter.
Nonetheless, local businesses remain hesitant in their confidence with nearly half of those surveyed (49 percent) seeing no change in second-quarter job levels.
Larger employers and manufacturers are somewhat more likely to predict second-quarter job increases. Among large employers, 36 percent forecast second-quarter job increases vs. 28 percent for small employers. For manufacturers, 39 percent see second-quarter employment increases, while 29 percent of non-manufacturers see gains. But in all cases the largest number of responses indicated no change in employment is expected in second-quarter job levels.
Modest increases are projected in wages and salary for the near-term future. The average percentage change in per employee wages and salaries over the next 12 months was forecast at 1.6 percent, up modestly from the 1.3 percent average in 2010’s first quarter.
Sales expectations for the year 2010 as a whole have been significantly upgraded since the beginning of the year. Three months into 2010, 67 percent of businesses surveyed expect increasing sales levels for 2010 as a whole, up from the 56% who saw gains at the beginning of 2010.
Currently, only 11 percent forecast a yearly sales decrease, while 22 percent see no change.
The Business Outlook Survey, conducted by the MMAC, contains responses from 157 Milwaukee area firms, both large and small, employing more than 88,650 people.

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