Recovery may need a kickstart

Diminished expectations mark survey results from the latest Metropolitan Milwaukee Association of Commerce (MMAC) Business Outlook Survey.

Sixty-one percent of businesses surveyed see sales increases in 2013, 48 percent forecast profit gains and 43 percent expect job growth in the calendar year.

Business optimism in the metro Milwaukee area has trended downward in recent quarters.

Since annual sales optimism reached its post-recession high in 2012’s second quarter, expectations have fallen in each of the past three quarters.

It may be too early to send up major warning flags but these survey results suggest that business growth in 2013 will not reach levels posted in 2012. The manufacturing led job growth of 2012 may become more balanced in the New Year with a greater contribution from non-manufacturing industry sectors, but overall the results are rather lackluster. Further the results suggest 2013 may get off to a slow start as expectations for the year’s first quarter rank under the full-year results.

Sales optimism among area businesses opens 2013 at a notably lower level than that expressed at this time last year. Sixty-one percent of businesses surveyed forecast higher real sales levels in 2013 vs. the 73 percent who predicted annual gains at the beginning of 2012. Currently 14 percent of those surveyed predict 2013 sales declines while 26 percent see no change.

In a reversal of recent trends, non-manufacturers are more likely to see 2013 sales gains than manufacturers. Sixty-eight percent of non-manufacturers see sales increases for the New Year, while 11 percent see decreased sales levels.

Conversely, slightly more than half (52 percent) of manufacturers predict sales gains while 17 percent expect declines. By firm size, 67 percent of large employers (100 or more employees) see 2013 sales gains vs. 55 percent among small employers.

The profit forecast by metro area businesses was likewise tempered from earlier quarters. Forty-eight percent of all employers surveyed see profit level increases in 2013. Twenty-one percent see profit declines for the year and 31 percent expect no change. Those expecting profit growth in 2013 fell significantly below the 68 percent who forecast 2012 profit gains one year ago.

Regarding capital spending plans, 34 percent of companies surveyed forecast a rise in capital expenditures for the year. Twenty-six percent see capital spending declines and 40 percent expect no change. The percentage currently predicting increases is down from the 44 percent who opened 2012 expecting capital spending gains.

Modest job declines were the order of the day in 2012 for the metro area with year-over-year declines posted in 10 of the year’s first eleven months and an average job decline of 0.4 percent over this period. Survey results suggest mixed employment prospects for 2013. Businesses expecting job gains in their local workforces in 2013 outnumber those predicting declines by over a two-to-one margin (43 percent see increases vs. 17 percent expecting declines). Forty percent see no change. Yet optimism is down from levels expressed at the beginning of 2012 when over half (54 percent) of all surveyed saw employment gains for the year.

The manufacturing sector posted a strong 2012 with an average year-over-year job gain of 2.7 percent over the year’s first 11 months. On the other hand, service sector employment fell at a 0.8 percent pace on average over this same period. Survey results suggest perhaps a strengthening job picture for non-manufactures in 2013. Among non-manufactures, over half (51 percent) see 2013 job gains, while only 10 percent expect declines and 39 percent see no change. In manufacturing those seeing 2013 job gains (33 percent) rank only modestly higher than those expecting declines (25 percent) and the largest number expect no change (39 percent).

The lackluster job trend over the course of 2012 has failed to put pressure on future wage and salary increases. Presently the average change in per person employee wages and salaries is forecast to rise 2.2 percent over the next 12 months, up slightly from the 2 percent annualized increase predicted three months ago but matching the rise forecast at the beginning of 2012.

Inflationary pressures will largely be held in check for 2013. Thirty-seven percent of companies surveyed see inflation falling in the 0 percent to 2 percent range while a larger percentage (57 percent) expects price increases of 3 percent to 5 percent. Only 5 percent predict price gains of 6 percent or higher.

A significant drop-off has been registered in the quarterly sales outlook over recent quarters. Over the past three quarters the percentage of businesses predicting real sales gains for the quarter has fallen by 27 percentage points. For 2013’s first quarter less than half (49 percent) of those surveyed expect first-quarter sales gains (vs. 2012’s first quarter), 22 percent see sales declines, and 29 percent expect no change. The current percentage predicting a quarterly sales increase is down from the 76 percent who forecast second-quarter, 2012 sales gains and the 61 percent who predicted fourth-quarter increases (vs. year-ago levels).

Diminished profit expectations were also expressed. Only forty-four percent of Milwaukee area businesses see higher profits for the quarter (vs. year-ago levels), down from the 53 percent who forecast fourth-quarter, 2012 profit gains. Currently 25 percent predict profit declines while 31 percent see no change.

Quarterly employment expectations have slipped in each of the past two quarters. Thirty-nine percent of all businesses surveyed predict first-quarter, 2013 job gains for their local operations (vs. 2012’s first quarter), down from the 55 percent and 46 percent of companies which forecast year-over-year gains in 2012’s third and fourth quarters respectively. Nonetheless companies are still over twice as likely to forecast employment gains for 2013’s first quarter as declines (17 percent). The largest percentage (44 percent) sees no change.

Non-manufacturers expressed the greatest likelihood of expanding job levels. Forty-four percent of non-manufacturers surveyed expect higher employment totals in 2013’s first quarter (vs. one-year ago), higher than the 32 percent of manufacturers who expect such gains.

The Business Outlook Survey, conducted by the MMAC, contains responses from 141 Milwaukee area firms, both large and small, employing more than 64,300 people.

Bret Mayborne is the MMAC’s economic research director.

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