January 04, 2012

Things are looking…up?

I am an eternal optimist. I always try to look at things from the perspective that a positive response will lead to a positive outcome. The same can be said of the results for several economic indicators recently reported in Northeast Wisconsin.

First, the positive empirical evidence shows the economy is improving in Northeast Wisconsin.

The following results came from the NEW Manufacturing Alliance 2012 Manufacturing Vitality Index, a survey specifically of manufacturers in Northeast Wisconsin:

  • 63% of those responding reported increased sales in 2011 and expect even higher sales growth in 2012.
  • Similar to last year, 21% of firms expect significant plant expansion and 36% of the firms surveyed were planning a plant modernization project. This is down from 48% a year ago.
  • 43% of respondents anticipate hiring new personnel in the first quarter of 2012.

  • Positive indicators can also be found in the 2012 First Business Economic Survey of Northeast Wisconsin, a broader based survey of all businesses in Northeast Wisconsin:
  • The percentage of firms reporting increased sales revenues was 56% compared to 51% in 2010.The percentage reporting increased profitability stayed flat at 45%.
  • 55% of firms reported increased pricing compared to 36% in 2010.

  • Capital expenditures were slightly up in 2011, though not significantly, with 38% of firms reporting increased capital expenditures in 2011 compared to 30% in 2010.

  • Wage and job growth were up slightly from 2010. However, for 2012, 37% of businesses project increased employment and 64% project increased wages.

  • Some of the drag on the improvement in Northeast Wisconsin can be found in the negative results of the same survey:
  • Over 62% of businesses reported an increase in their operating costs compared to 48% in 2010. 32% of businesses experienced a shortage of qualified technical school graduates. This shortage was most evident in the manufacturing industry.

    I would interpret the results of these surveys and some possible positive outcomes in the following ways:

    First, in both surveys, firms reporting revenue increases are up. This is good. Pushing more products out the door is what most businesses are around to do. I am not too concerned about the increase in operating costs (and therefore level profitability) as there was a significant amount of stress in the system as firms held off on increasing operating costs in prior periods, allowing more revenues to fall to the bottom line.

    Second, firms feel that prices need to increase and many are pushing this increase out to their customers. Many firms reported increased sales revenues and it could be that part of this increase is coming through increased prices and not just increased volumes.

    Third, firms are still hiring, and it appears that they are hiring as an investment in the future, since the profitability of firms remained flat year over year and capacity utilization actually declined. The inability of firms to find and attract qualified candidates is the most disconcerting indicator and is reflected in both surveys.

    Anecdotally, I saw more people than ever this year at the NEW North Summit 2011. Many of the discussions that I participated in lead me to the following conclusions:

    Regarding the workforce, noted as a challenge in both surveys, the labor pool is strengthening, largely due to some of the initiatives of the area technical colleges and workforce development entities. These groups are critical to improving the pool of talent that is needed to fill the jobs that will come online in the future.

    Prices appear to be increasing and that’s very positive. That indicates that there is confidence that customers are at the point of being willing to pay more for the goods and services they use.

    Also, as expenses normalize, this will lead to better margins. I think all agree that business has been improving, despite some of the noise and distractions occurring in the region and nation on a political level.

    So, call me optimistic, but I believe improvements will continue to be made as long as businesses share this optimism and feel confident that things will continue to improve.

    Michael E. (Mickey) Noone is President Northeast Region, First Business Bank, headquartered in Appleton

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