A record low number of survey respondents in Milwaukee and Waukesha counties reported lowering their head counts in 2011, and an even lower percentage anticipate a decrease in 2012, according to data contained in the annual First Business Economic Survey of Milwaukee and Waukesha County employers.
Meanwhile, the area’s manufacturing sector continues to gain strength, as 53% reported increased profitability in 2011, but manufacturing firms continue to have difficulty finding workers with the right skills for open positions.
The findings will be announced today by First Business Bank at the First Business Economic Forum, held at Carroll University. The fourth annual survey, which was sent to 7,990 businesses with five or more employees, was conducted in September and October 2011 by the University of Wisconsin’s A.C. Nielsen Center for Marketing Research. The survey garnered 500 responses across the two counties; the survey sample size has an error range of 5% and a confidence level of 95%.
The survey, which was addressed to the CEO, CFO, president, or business owner, asked executives to assess current performance, and predict the future performance, on eight key economic indicators: sales revenue, profitability, total operating costs as a percentage of revenue, capital expenditures, number of employees, overall wage change, and changes in pricing and operating capacity.
In terms of number of employees, only 19.2% saw a decrease in 2011, lower than any previous survey, and only 11.2% expect a decrease in 2012. Most of the surveyed employers, 57.1%, saw no change in their work force in 2011, while 62.9% foresee no change in the number of employers in 2012. Also in 2011, 23.6% saw an increase in employee counts, and more, 25.9%, expect to add employees in 2012.
With sluggish job creation a hallmark of the economic recovery, Dave Vetta, president of First Business Bank-Milwaukee, called the rising employment numbers noteworthy. “Less bad news is good news,” he stated. “People are still cautious but they are seeing increases in revenue. I was just talking to someone in the manufacturing sector, who is just very excited and busy right now, so there is a lot of demand and employment will likely be going up. With new product lines and new geographies, people are investing in those aspects of their business. That requires more people.”
Milwaukee and Waukesha employers did not report much change in their companies’ overall performance in 2011, as little change was reported in sales revenue, profitability, operating costs, or capital expenditures. Half of the firms reported that they are not meetings self-imposed expectations for 2011, and only two-thirds of companies project better performance expectations for 2012, compared to 72% for 2011. Domestic sales shortfalls were the number one reason given for the under-performance of the past year.
Sector performance
The most positive industry sector in 2011 was manufacturing, where 34% of the businesses reported exceeding expectations, compared to the regional average of 16.7%.
Significantly more manufacturers reported increased sales revenues, profits, employment, and wages. The manufacturing sector reported the highest percentage of companies with increases profitability, 53% compared to a range of 29 to 36% in the retail, technology, and service sectors.
In addition, manufacturers had the largest increase in wages, with 60% increasing wages in 2011, compared to 42% in 2010.
The one downfall, according to Vetta, is that many manufacturing openings go unfilled due to the lack of needed job skills. The survey indicates that 46% of the responding manufacturers continue to see a shortage of job applicants and 78% of those employers report a shortage of experienced technical school graduates.
“As I talk to the folks who run the Manufacturing Alliance in Waukesha, I’m told that is a very real issue around education and attracting workers because they are growing, they have openings, and certainly with the demographics, we know they are going to be losing workers over the next five to 10 years,” Vetta said. “That’s a little bit of a call to action.”
Tom Hefty, retired chairman and CEO of Cobalt Corp. and its subsidiary BlueCross BlueShield United of Wisconsin, believes the two counties are in a “bit of a Catch-22” with manufacturing profitability increasing, and a shortfall in qualified candidates. He said the growing strength in manufacturing could be detected in last year’s survey, and in this year’s survey that strength is translating into job and wage growth.
“For manufacturers, it was 3 to 1 the number of growing firms versus the number of shrinking firms,” Hefty noted. “The other good news is you start to see a pick up in wages, particularly in manufacturing. When you look at wages by sector, you’ve got improvement in three of the four major sectors, and I think that bodes well in terms of other parts of the economy.
“The retail sector continues to be somewhat weak, but if you have better employment, particularly in manufacturing in Milwaukee and Waukesha, you would expect to see some of that improvement spreading [to other sectors] in the coming year.”
In the retail sector, 20% reported they are cutting jobs; only 11% reported growing jobs, which is an improvement over recent surveys. “Those numbers have been negative for four years, but they are less negative today,” Hefty stated. “That still means the recovery hasn’t been broad-based yet.”
Sales and profitability
In terms of sales revenue and profitability, the survey found the following:
- 47.4% saw an increase in 2011 actual sales, up 3.1% from 2010; 55.5% expect an increase in 2012, down 0.45% from 2011 projections.
- 41.2% saw a decrease in 2011 actual sales, down 5.2% from 2010; only 21.6% expect a sales decrease in 2012, down 0.48% from projected 2011 numbers.
- 11.2% experienced no change in sales, up 1.9% from 2010; in 2012, 23.2% expect no change in sales over 2011 projections, up 0.9% over 2011.
- 37% reported an increase in profitability in 2011, down 1.8% from 2010; 44.27% forecast an increase in profits in 2012, down 4.33% from 2011.
- 43.1% saw a decrease in profits in 2011, down 3% from 2010; meanwhile, 27.6% anticipate a decrease in profitability in 2012, up 3.5% from 2011.
- 19.1% reported no change in profitability in 2011, up 4.1% from 2010; and 28.2% anticipate no change in profits in 2010, up 0.9% from 2011.
Several measures continued to reflect upward trends. Nearly half of responding businesses increased wages in 2011, compared to 37% in 2010, and 48% of the businesses expect to increase wages in 2012. In addition, a record low of 8% reported decreased wages, down from 18% in 2010 and 28% in 2009.
Another positive sign: businesses are operating at higher capacity utilization, with a significantly higher percentage of employers operating at 70% to 90% of capacity, and substantially fewer operating under 70% capacity.
Overall, almost half of the businesses surveyed, 46.8%, increased wages in 2011, up from 37% in 2010, and 48% intend to raise wages in 2012.
They also are more receptive to passing on price increases to the end-client, as 46.9% reported an increase in pricing in 2011, up 11.2% over 2010, and 52.9% expect an increase in pricing in 2012. “Two years ago, that was not the case, so we saw margins get squeezed the past couple of years, and that’s one of the reasons profitability increased and will continue to increase,” Vetta said.
While there are pockets of optimism, the data presented does not signal a most robust growth phase for the economy. “I’m not sure we’re going to get past a sluggish recovery,” Vetta stated. “I’m not sure we’re at ’08 levels yet in the manufacturing sector, and I don’t think we’re going to see a big busting out. I think there are still enough headwinds and concerns and uncertainty.”
Hefty used the term “measured” growth. “In this survey,” he said, “you don’t see folks expecting a rapid turnaround.”
The complete results are available at First Business Bank’s website under “Newsroom.”
