First Business survey: Dane County economy back to pre-recession levels

This time last year, one of the most encouraging aspects of the annual First Business economic survey was the fact that both actual company performance and future expectations were reaching pre-recession levels. This year, in virtually every performance metric, area businesses have finally exceeded pre-recession levels, and they head into 2015 with a strong head of steam.

The findings are part of the 2014 First Business Economic Survey, which takes the pulse of local businesses each fall. They were released Dec. 3 at the organization’s annual economic forum at Monona Terrace.

“Whether the labor supply can keep up with the labor demand remains to be seen, and that has the potential to moderate the pace of hiring.” — Dr. Moses Altsech, president, Moses Altsech Consulting

Those in attendance learned that the percentage of Dane County businesses operating at or above expectations in 2014 was a record 73%, the highest level since the first year of the survey (70% in 2004). Overall, a survey record 90% of businesses expect better performance in 2015, which continues a three-year upward trend. The previous best of 84% was recorded for 2007.

To Mark Meloy, president and CEO of First Business Bank, the results show the local economy has not only turned a corner, but that optimism is the order of the day. “Optimism is the perfect word for it,” he said.

As in past surveys, respondents provided actual 2014 company performance and what they project for 2015 in eight key economic indicators: sales revenue, profitability, total operating costs as a percentage of revenue, capital expenditures, number of employees, overall change in wages, change in pricing, and operating capacity.

Also among the signs that the Great Recession is behind us is that in 2014, Dane County businesses continued an upward trend in sales revenue that began in 2010. A record 76% of businesses reported increased sales revenue, and the year-to-year change is a statistically significant increase from the 2013 level of 55%.

In addition, a record 63% of businesses in Dane County saw increases in profitability in 2014, and they expect the net income to keep rolling in next year, with even higher profitability across all sectors. This despite 53% of businesses reporting an increase in operating costs as a percentage of revenue.

Waging commerce

Consumer spending is a key economic driver, accounting for two-thirds of the national economy. In service-oriented Dane County, it’s also a vital measure of economic health, and recent employment and wage trends provide some tidings of comfort and joy.

While year-to-year changes for employees and wages are not statistically significant, both are trending up. There is now a five-year declining trend seen in the percentage of companies reporting decreased employment numbers, from 39.8% in 2009 to 8.6% in 2014.

The percentage of businesses reporting decreased wages is at its lowest level, 4.8%, in the history of this survey. More than 75% of respondents reported increased wages for 2014, which is back to pre-recession levels, and a record 84% expect increased wages in 2015, compared to 55% last year.

“The outlook on employment is very strong,” stated Dr. Moses Altsech, president of Moses Altsech Consulting, who helped conduct the survey. “The era of layoffs is behind us, and both hiring and wages are expected to increase. This is very good and long-overdue news for both people who are entering the workforce for the first time and more professionally experienced people who are looking for new opportunities.

“Whether the labor supply can keep up with the labor demand remains to be seen, and that has the potential to moderate the pace of hiring.”

(Continued)

 

Yet another positive sign is capital expenditures, which increased or were unchanged for 90% of respondents, another all-time high. What’s more, 46% of survey respondents expect to increase “cap-ex” in 2015, which is the highest level since 2006. In the manufacturing sector, 57% of respondents say they will increase capital expenditures next year, which is a record in that category.

“This is one of the things I’ve always commented on: When are we going to see businesses spending or reinvesting in their own businesses?” Meloy noted. “We are starting to see that in these results.”

And there is still some room to grow, if capacity utilization is any indication. After reaching the peak in capacity utilization in 2013, when 38% of respondents reported utilizing at least 90% of their capacity, this number declined in 2014, as only 21% of businesses reported utilizing at least 90% of capacity.

Altsech said the optimism felt by businesses in Dane County, the Milwaukee region, and northeastern Wisconsin, where First Business also surveys, has the potential to become a self-fulfilling prophecy, especially because the upbeat attitude is not casually formed. “If anything, after such a long-lasting and deep economic crisis, business leaders have long been conservative in their projections and cautious about their optimism,” he noted. “The fact that they don’t feel the need to be as apprehensive moving forward and that they are optimistic across the board (sales, profitability, employment), optimistic across regions, and optimistic across industries is very good news.”

First responders

The survey, conducted in September and October of 2014, was sent to 5,100 Dane County businesses with five or more employees and was addressed to chief executives, chief financial officers, presidents, and/or business owners. Of the surveys that were sent out, a total of 187 were returned and adequately completed by the deadline, which is a 3.6% response rate.

Readers can download the full First Business Economic Survey Report for Dane County, the Greater Milwaukee Area, and Northeast Wisconsin at www.firstbusiness.com/survey.

Selected responses: Why companies will perform better in 2015:

  • “New products introduced.”
  • “Our client base has expanded, plus some are seeing increased business, which translates into more business for us.”
  • “Redirected focus in new business development, marketing, and improved strategic planning/vision.”
  • “New talent, sales initiatives, controlled growth.”
  • “We will be better positioned to take advantage of the investments we have made in 2013-2014.”
  • “Booming downtown Madison rental market.”
  • “The processes we put in place in 2014 will only enhance future business opportunity.”

 

Selected responses: Why companies will perform worse in 2015:

  • “We will lose some customer base with a move and our new location and costs related to the move are unknown.”
  • “Increased competition and supply.”
  • “Increased costs but unable to increase revenue to match.”
  • “Extraordinary revenue in 2014 not expected in 2015.”
  • “Key retirements, hard to find qualified employees, decreased spending by clients due to market pressures, and mergers and acquisitions (several cases of clients merging with each other, resulting in fewer clients and billings).”

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