First Business survey: A robust 2018 in the cards

After another solid performance in 2017, Dane County employers are extremely optimistic about the local economy heading into 2018, according to the 15th annual First Business economic survey. An overwhelming 99% of companies expect improved or unchanged performance, including 79% that anticipate improvements, and 2018 hiring projections are at record highs.

The results were revealed today during the annual First Business Economic Forum. The survey is conducted in the fall and focuses on the current year’s actual and next year’s predicted results in seven categories: sales revenue, total operating costs, capital expenditures, profitability, number of employees, changes in wages, and changes in pricing.

“Boy, the numbers are really positive,” states Dr. Moses Altsech, a faculty member at UW–Madison and president of Altsech Consulting, the firm conducting the survey. “You would expect after several years of really positive numbers, you start to wonder whether this might be the year when people are a little more cautious, but it’s not. It’s really not.”

Best made plans

To help local employers better plan for the forthcoming year, First Business Financial Services underwrites the survey to give them a broad and up-to-date understanding of the local business climate.

In the forthcoming New Year, that business climate is looking very tropical, as the aforementioned 79% of respondents that expect to perform better in 2018 represents an increase of 10 percentage points from the previous year. Moreover, just 1% of respondents expect a worse overall business performance in 2018 than they had in 2017, which is down from 4% from last year.

Dr. Moses Altsech, president of Altsech Consulting, which conducted the annual First Business Economic Survey, delivers the survey's results Wednesday at Monona Terrace.

This means that nearly every company expects their overall business performance to be the same or better in 2018. The buoyant results are consistent with national economic news, including surging consumer confidence, a declining unemployment rate (now just 4.1%), and 3.3% gross domestic product growth in the third quarter of 2017.

Mark Meloy, CEO of First Business Bank, notes the survey results show “widespread optimism” among Dane County business leaders. “It’s notable that while they had very high hopes for 2017, 80% of respondents felt their expectations were met this past year, which is exceptional,” Meloy states.

It’s also significant that more than three quarters of businesses (78%) reported higher wages in 2017, beating the previous high in 2006, and that more Dane County business leaders plan new investments in their workforce in 2018.

While he described the 2017 sales performance as solid and steady, Meloy is more impressed with the new historic low of 3% that expect a decrease in 2018 projected sales. “The optimism is reflected in that low percentage,” he states.

Also in 2017, the percentage of companies adding new staff was just below historic high levels, as 48% of respondents reported an increase in actual number of employees in 2017, down from the previous year’s historic high 51%. However, a new historic high of 53% say their projected number of employees in 2018 will be higher, as well.

Thirty percent of respondents indicated that 2017 was better than expected in terms of overall performance, which is unchanged from the previous year, and 50% reported that 2017 performance lived up to their expectations, up from 44% in 2016 and 39% the year before. Since overall business performance expectations for 2017 were very strong to begin with, the fact that 80% of all respondents met or exceeded those expectations is considered a very positive outcome.

Another sign of improving business confidence is the low percentage of companies that actually decreased capital expenditures (8%), which marked a new historic low, and more than nine out of 10 companies increased or maintained their capital expenditure levels. In all, 92% of respondents reported that capital expenditures remained steady or increased, and 32% of respondents expect to increase capital expenditures in 2018.

Eight out of 10 respondents expect further improvements in overall business performance next year.

Worry doesn’t cause warts

Business expansions don’t last forever and even as optimism rises heading into 2018, there is some uncertainty centered on possible changes to the Affordable Care Act (the individual mandate could be eliminated as part of tax reform), the fate of corporate and individual tax rates and deductions (the prospects of which improved considerably after U.S. Senate passage), and potential geopolitical upheaval, especially with the North Korean nuclear standoff.

However, those possibilities have little impact on optimism for the year ahead, as more than half of Dane County business leaders say they’re capitalizing on the positive 2017 results by planning to diversify their client base in 2018.

In addition, one-third plan to create a process for generating innovative business ideas, and 30% plan to create or expand a leadership-training curriculum tailored to their company.

Altsech says these responses were produced with the addition of a new question on this year’s survey, and he hopes they are more than New Year’s resolutions. “They are really interesting things, very useful things for business,” Altsech says. “I can’t help but wonder if they are more aspirational or whether companies are actually going to do it.”

(Continued)

 

Breaking it down

First Business Financial Services is a bank holding company and parent of First Business Bank in Madison. In addition to Dane County, First Business also conducts economic surveys in the Greater Milwaukee Region, Southeast Wisconsin, and Northeast Wisconsin.

Local panelists discuss findings from the annual First Business Economic Survey Wednesday at Monona Terrace. Panelists, from left to right, included: Mike Victorson, president/CEO, M3 Insurance; Corey Chambas, president/CEO, First Business Bank; Jane Young, co-owner, Widenbeck; Nate Herbst, CEO, WTS Paradigm; Jay Loewi, CEO of the QTI Group; and Dr. Moses Altsech.

The survey was completed by 318 respondents in four regions in Wisconsin, with 214 coming from Dane County. It was distributed electronically to business decision makers, including owners, CEOs, and CFOs, and was completed over a period of six weeks, from late September to early November 2017.

Interested business executives can download the full First Business Economic Survey Report for Dane County Wisconsin at www.firstbusiness.com/survey, but here is a brief rundown of the actual 2017 and projected 2018 results in each category of business performance.

  • Sales performance: The percentage of companies that saw an increase in actual sales decreased from 71% in 2016 to 65% in 2017, returning to the percentage reported in 2015, and the percentage of companies recording a decrease in actual sales in 2017 remained at the previous year’s historic low of 10%. There still is optimism for the year ahead, as 75% expect an increase in projected sales for 2018, down 3% from the previous year, but a new historic low 3% expect a decrease in 2018 projected sales.
  • Profitability: Fifty-two percent of Dane County companies reported an increase in profitability in 2017, down from 57% the previous year. The percentage of respondents who reported a decrease in actual profitability was 20%, a single percentage point above the historic low reported in 2016. Fifty-nine percent expect an increase in 2018 projected profitability, down just 1% the previous year, and 8% expect a decrease in projected profitability for 2018, which is just above the historic low.
  • Employment and wages: Only 2% of respondents expect a decrease in their projected number of employees for 2018, another historic low, and 78% of respondents saw actual wages increase in 2017, surpassing the previous historic high set in 2006. Three percent reported a decrease in actual wages, which was unchanged from 2016 and still close to the 1% historic low set in 2015. In addition, 76% anticipate an increase in 2018 projected wages, which is down 2% from the previous year, and 2% expect a decrease in projected 2018 wages, just one percentage higher than the previous year’s historic low.
  • Capital expenditures, operating cost as a percentage of revenue, and pricing: Forty-one percent of respondents reported an increase in actual capital expenditures in 2017, up 3% from the previous year, and a historic low of 8% reported a decrease. Projections for 2018 are along the same lines: 38% expect an increase in projected capital expenditures (unchanged), and those who expect a projected capital expenditures decrease in 2018 are at 9%, a single point above the historic low.

Fifty-one percent reported an increase in actual total operating cost as a percentage of revenue in 2017, up 8% from the previous year. In 2018, 37% expect an increase in projected total operating cost as a percentage of revenue, a single percentage point higher than the previous year.

Finally, 54% saw an actual pricing increase, up from 47%, and just 1% saw an actual pricing decrease in 2017, a new historic low. Next year, 58% of respondents expect a pricing increase, while none anticipate a pricing decrease, another new historic low.

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