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Business Outlook Survey

Third Quarter, 2010

NEWS RELEASE

For further information contact
Economic Research Director BRET MAYBORNE at (414) 287.4122 or bmayborne@mmac.org

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Improving business prospects are forecast for 2010’s third quarter, according to a business outlook survey conducted by the Metropolitan Milwaukee Association of Commerce (MMAC). Two-thirds of surveyed businesses see higher real sales levels in 2010’s third quarter (vs. year ago levels) and 43% expect job level increases.

“The economic environment improved in 2010’s first half and optimism among local area business has grown as a result,” said Bret Mayborne, the MMAC’s economic research director. “The hope is that the metro area economy can move past the tipping point in 2010’s second half into a period of strong and sustainable growth.”

Sixty-six percent of all businesses surveyed see real sales gains in 2010’s third quarter (vs. year-ago levels), up from the 64% who forecast second-quarter sales increases. Eighteen percent predict third-quarter sales declines (vs. 2009's third quarter) while 16% expect no change. Expectations toward increasing sales levels have risen in each of the past five quarters, rising from the 22% who saw future sales gains for 2009’s second-quarter to the 66% who currently expect increases (vs. year-ago levels).

Sales expectations varied little by industry type. Sixty-eight percent of manufacturers see third-quarter sales gains (vs. 2009's third quarter), while 65% of non-manufacturers see such increases. Differentials by employment size were likewise small – 68% of large companies (100 or more employees) surveyed see third-quarter sales gains vs. 65% among small companies.

The economic enviroment improved in 2010's first half ... the hope is that the metro area economy can move past the tipping point in 2010's second half into a period of strong and sustainable growth."

Bret Mayborne
MMAC's Economic Research Director

On a year-over-year basis, jobs in the metro area have fallen for 25 consecutive months. However the rate of jobs decline has slowed in eight of the past nine months, from the 6.3% decline posted in August, 2009 to the current 2.1% fall (May, 2010). Results of the business outlook survey suggest that the job trend is likely to continue improving in the coming quarter. Employers expecting job increases outnumber those projecting declines by nearly a two-to-one margin. Forty-three percent of those surveyed see third-quarter job increases (vs. year-ago levels), while 22% expect decreases. The remainder (35%) sees no change. The current percentage forecasting employment gains ranks higher than the 32% who forecasted second-quarter job increases.

Manufacturers indicate more optimism on third-quarter job prospects than their non-manufacturing counterparts. Nearly half (49%) of manufacturers surveyed expect rising third-quarter job levels in their local operations, while 39% of non-manufacturers see such gains. Large and small employers have similar expectations with 43% and 44% of those surveyed respectively predicting year-over-year job gains.

Sixty-two percent of surveyed businesses predict third-quarter profit gains, marginally higher than the 61% who saw second-quarter increases (vs. year-ago levels). Twenty percent see profit declines in 2010’s third-quarter and 18% see no change.

Calendar Year 2010 Expectations

Calendar year expectations also indicate an improving growth climate in the metro area. Local businesses have adjusted full-year expectations towards sales, profits and employment upward over the course of 2010 first six months. Half way into the year, 69% of all businesses surveyed see real sales levels increasing for 2010 as a whole, vs. the 56% who saw such gains at the beginning of 2010. Currently only 17% of businesses expect sales declines for the year as a whole, while 14% predict no change.

Sixty-four percent of businesses predict profit increases in 2010, while 22% see declines (the remaining 14% predict no change). The current percentage expecting profit increases for the year is up from the 56% who opened 2010 expecting gains.

Over half (52%) of employers surveyed forecast employment increases in 2010 for their local operations, up from the 37% who predicted job gains at the start of 2010. Presently, only 19% see employment level declines for the year as a whole while 29% predict no change in employment levels for their local operations.

Increased capital spending is forecast in 2010 for the largest number of companies surveyed. Forty-two percent of companies see capital spending levels rising in 2010 vs. year-ago levels, up from the 30% who saw such gains at the beginning of 2010. Presently 26% expect capital spending declines for the year, while 32% see no change.

Survey results indicate that no significant upturn is expected in price inflation for 2010. Forty-seven percent of those surveyed see price inflation of 2% or less in 2010, while an equal amount (47%) predict a moderate levels of price inflation (between 3% and 5%). Only 6% of those surveyed see inflation of 6% or higher.

Wage and salary expectations are trending upward but remain at low levels overall. Employers project an average annual increase of 2.1% in per employee wages and salaries over the next 12 months. The forecast average is up from the 1.6% rise projected three months ago and has risen in four of the past five quarterly surveys. Little variation was indicated either by size of firm or by industry in the projected size of the increase.

The Business Outlook Survey, conducted by the MMAC, contains responses from 150 Milwaukee area firms, both large and small, employing more than 80,000 people.