Third Quarter, 2014

For further information contact Economic Research Director BRET MAYBORNE at (414) 287.4122

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July 7, 2014 – Metro Milwaukee businesses remain optimistic toward future growth prospects, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC). Seventy-two percent of businesses surveyed see rising real sales levels in 2014’s third quarter (vs. year ago levels), two-thirds expect profit increases while nearly half see employment gains.

“Business optimism toward sales, profits and jobs either improved somewhat or held steady from three months earlier suggesting that the growth environment for the metro area remains largely intact for 2014’s third-quarter,” said Bret Mayborne, the MMAC’s economic research director. “Metro area job growth continued in the year’s first half and unemployment rates fell. Strengthened job expectations hint that this trend is likely to continue.”

Business optimism toward sales, profits and jobs either improved somewhat or held steady from three months earlier suggesting that the growth environment for the metro area remains largely intact for 2014’s third-quarter,”

Bret Mayborne
MMAC Director
of Economic Research

      Sales optimism among local businesses remain at a healthy level. Seventy-two percent of surveyed businesses see rising real sales levels for the third quarter (vs. 2013's third quarter), matching the percentage who forecast second-quarter gains. Currently, 14% see declines in third-quarter sales levels, while 14% expect no change.

Little variation was evident by industry or firm size regarding expectations toward third-quarter sales levels. Seventy-three percent of manufacturers see third-quarter sales gains (vs. 2013's third quarter), while 71% of non-manufacturers see such increases. By employment size, 73% of small companies (less than 100 employees) surveyed see third-quarter sales gains vs. 71% among large companies.

Profit expectations rose strongly for 2014’s third quarter. Sixty-six percent of all businesses surveyed see increases in third-quarter profit levels (vs. year ago levels), up from the 57% who predicted second-quarter gains. Currently 15% see declines in third-quarter profits, while 18% expect no change.
Year-over-year employment gains have improved in recent months pushing the year-to-date job gain to 1.1% through 2014’s first five months (latest available). Survey results suggest continuing job gains in 2014’s third quarter. Businesses forecasting third-quarter 2014 employment gains (49%) vs. year-ago levels outnumber those expecting job declines (10%) by nearly a five-to-one margin. Job expectations are stronger than expressed for 2014’s second quarter when 41% of respondents forecast employment growth (vs. 2013’s second quarter).

Despite recent job declines, manufacturers are more likely to forecast third-quarter employment gains (54% expect increases vs. year-ago levels) than non-manufacturers (where 44% see such gains). In both cases the number of businesses expecting quarterly job declines (12% for manufacturers vs. 8% for non-manufacturers) is considerably smaller than those expecting job gains. Thirty-five percent of manufacturers and 47% of non-manufacturers see no change in third-quarter employment levels.

Calendar Year 2014 Expectations
Unlike third-quarter prospects, expectations for the calendar year as a whole were down from earlier forecasts. Sales expectations for calendar year 2014 have trended downward since the beginning of the year. Six months into the year, 68% of all businesses surveyed see real sales levels increasing for 2014, down from the 75% who forecast an annual real sales gain at 2014’s beginning and the 74% who predicted a yearly sales increase three months ago. Currently 11% expect sales declines and 21% predict no change.

Optimism towards profit levels have held steady since the year’s beginning. Sixty-four percent of businesses predict profit increases in 2014, while 14% see declines (the remaining 22% predict no change). The current percentage expecting profit increases for the year ranks near the 65% who opened 2014 expecting profit gains.

Over half (55%) of employers surveyed forecast employment increases in 2014 for their local operations, outnumbering those who expect job declines (11%). Thirty-four percent see no change in employment levels. Current calendar year expectations are down from forecasts made at 2014’s start when 59% predicted 2014 job gains.

On the three principal outlook measures (sales, profits and employment) there was some variation by industry and employment size. In each case larger companies (100 or more employees) and manufacturers were somewhat more optimistic toward calendar year 2014 than their counterparts.

The largest number of businesses surveyed see increased capital spending for the year. Forty-five percent of employers see annual capital expenditure increases in 2014, while 37% see no change. Only 18% expect capital spending declines for the year. The current percentage seeing increases matches the portion who predicted capital expenditure gains at the beginning of 2014.

Inflation expectations remain moderate. Half of those surveyed (50%) see price inflation falling in the 0% to 2% range for 2014. Forty-nine percent forecast inflation of 3% to 5%, while only 1% see inflation falling in the 6% or above range.

Expectations toward wage and salary increases ticked slightly upward. A 2.3% increase in per employee wages and salaries is projected over the next 12 months, slightly higher than the 2.2% increase forecast three months ago.

The Business Outlook Survey, conducted by the MMAC, contains responses from 111 Milwaukee area firms, both large and small, employing more than 27,900 people.