First Business Economic Survey: More companies boosted performance in 2010.

photo courtesy of First Business Bank

Amid a jobless recovery, more Dane County executives reported higher sales, profits, and business expenditures in 2010, and more expect to improve on their 2010 performance in the new year, according to the annual First Business Economic Survey of Dane County.

Findings were announced today by First Business Bank at the First Business Economic Forum held at Monona Terrace.

The 8th annual survey, conducted by the University of Wisconsin's A.C. Nielsen Center for Marketing Research in September and October of 2010, found that 42% of businesses reported increased sales revenue, up from 28% in 2009, the largest change of any single indicator. This represents a reversal of a trend of decreased sales revenue that lasted from 2005-2009.

Overall, 56% of businesses met or exceeded expectations in 2010, compared to only 48 percent in 2009. "Compared to last year, this is a very positive report," noted Scott Converse of the UW-Madison School of Business. "The data is showing a definite rebound effect for Dane County businesses."

The survey, which was addressed to the CEO, CFO, president, or business owner, was sent to 3,973 businesses in Dane County with five or more employees. It asked top execs to assess current performance, and predict the future performance, on eight key economic indicators in the following areas: Sales revenue, profitability, total operating costs as a percentage of revenue, capital expenditures, number of employees, overall wage change, changes in pricing, and operating capacity. Results are based on the responses of 449 businesses across the county.

Measurable Metrics

The encouraging sales numbers were balanced by the fact that 46% reported a decrease in sales revenue, but even that is down from 62% in 2009.

Nearly 40% of respondents saw an increase in profitability, a jump of 8.54% over 2009, and 44% experienced a decrease in profits, a drop of 12%.

About the same percentage that experienced an increase in capital expenditures, 30.1%, saw a decrease in capital spending (30.54%), but both were improvements over 2009. Nearly 40% saw no change in capital spending.

A key determinant in business performance appears to be geographic diversification. "Looking at a lot of different categories — sales, profitability, employee levels, wage levels — there was clear correlation in that the more you went national, the stronger those metrics were," said Corey Chambas, CEO of First Business Financial Services. "Dane County was worse. Wisconsin was a little better. The Midwest was even better, and national was the best in that regard."

Sector Surges

Converse is especially pleased with the numbers in the manufacturing sector, where the percentage of firms reporting an increase in sales revenue increased by more than 40 percentage points. In manufacturing, which appears to be leading the nation's tentative economic recovery, 50% of organizations in this sector reported a sales increase. By comparison, only eight percent of Dane County manufacturers reported an increase in 2009.

In addition, the percentage of manufacturing firms showing an increase in profitability improved for the first time since 2006. Chambas noted that manufactures are more likely to sell nationally than businesses in other industry sectors. "Manufacturing performed best in terms of industries," he said, "and I think that flowed to the geography issue."

Also showing improvement was the retail sector, which saw increases in sales revenue and decreases in falling revenue. In retail, 40.5% reported an increase in sales, compared to 20.8% in 2009, while 44.3% saw a decrease in revenue, compared to 73.6% in 2009.

Forty-seven percent of retailers said they increased pricing, more than any other sector, while only 11% said they decreased pricing. Chambas attributed the retail price spike to the rise in the cost of goods, even with moderate inflation.

Technology also fared better in 2010, as about 52% of firms has a sales increase compared with 36.4% in 2009. IT firms reporting lower sales declined from 54.6% in 2009 to 38.5% in 2010.

Under the number of employees and overall wages, the percentage of businesses reporting increases did not change significantly. A smaller percentage of firms lowered wages, a category that was down from 23.2% in 2009 to 16.6 percent in 2010, and there was a significant increase in those maintaining the status quo — 45% in 2010.

In another telling sign, the percentage of businesses that reported cutting employees dropped to 33 percent in 2010 from 40 percent in 2009.

While the report shows a positive trend in these key indicators, Converse is tempering his enthusiasm because employee headcount and wages are still lagging behind the other economic indicators, and all indicators are still below their pre-recession levels.

"We've still got some work ahead of us," he said.


Cautious Optimism Reigns in 2011

The survey found that at least 79% of businesses, across all economic indicators, expect to perform better in the coming year.

Mark Meloy, president and CEO of First Business Bank, said business expectations are modestly better than last year, which is consistent with direct conversations he has with business owners in the community. "There is always a correlation between uncertainty and risk," Meloy stated, "and as business owners' confidence increases, so will their willingness to invest in their companies' future."

Meloy could not predict when that would happen, but said there has been uncertainty related to the costs of operation from health insurance, taxes (both withholding and income tax for businesses), and regulatory burdens. "As more of that gets defined as it relates to the new health care law and where we go with income tax rates, those will be building blocks that will help."

Chambas and Meloy believe the recent announcement that President Obama and Congressional leaders have reached an agreement to extend the Bush tax rate cuts will, if enacted, remove some of the cost uncertainty, even though they put a two-year time limit on the extension. "I think two years out is kind of a long way in today's environment," Chambas stated.

In terms of 2011 projections among survey respondents:

  • 58% expect sales to increase, 22.6% expect a decrease, and 19% no change.
  • 51% anticipate growth in profits, 23% see a decrease, and 25% forecast no change.
  • 36% say their capital expenditures will grow, about 17% see a decrease, and 47% foresee no change.
  • 62% expect no change in workforce, 26.5% see an increase, and only 11% anticipate a decrease.
  • 54% forecast an increase in pricing, 37% see no change, and about nine percent expect no change. (In 2010, 40% reported an increase, 42.6% did not change pricing, and roughly 18% raised prices).

Chambas noted that in terms of expectations for the forthcoming year, this year's survey shows the most optimism since 2007, when 81% expected business to improve. Yet in terms of projected hiring, their optimism is not translating to new job creation. Over the past three years, the percentage of respondents who said they would increase staffing has remained flat at 26%, 27%, and 26.5%, respectively.

"To me, that means there is a new way of doing business," Chambas said. "Normally, with this much optimism, we would expect to hire a bunch of people, but that is really not the expectation here."

Sharpening Their Pencils

Each year, the survey poses a current event question; this year, that question was: what techniques have you used to weather the downturn in the economy? The number one response from businesses was "improving internal efficiencies," as more than 50% of respondents cited this option as one of the things that made the greatest difference in getting through the tough economy.

Other methods cited include: increased sales efforts; reduced staffing; expanded client base; reductions in salaries; greater investment in marketing; hiring new talent; strategically reducing the scope of business; and renegotiated terms with suppliers.

The sample size has an error range of five percent and a confidence level of 95 percent. The complete results are available at First Business Bank's website under "Newsroom."

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