M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2017
Q1 2017 Economic Outlook Survey Results
Business Optimism
Surges in Wake of
Presidential Election
The latest survey results suggest that
many mid-sized companies are looking
forward to potential changes in economic
policy under President Trump’s new
administration.
70% of middle market firms expect
the economy to improve in the next
six months, the highest reading since
the recession. Commercial real estate
(CRE) firms were also optimistic,
although there were some concerns
around transaction volume and overall
industry outlook.
Despite newfound optimism around
the direction of the economy, business
fundamentals are mostly unchanged. On
net, 26% of respondents plan to increase
hiring, down slightly from a year earlier.
A net 42% expect increase capex,
while a net 45% expect to increase
sales – relatively small improvements
compared to the spike in optimism.
The positive response to the new
administration appears to be closely
related to expected changes in regulation
and taxes. Healthcare costs, regulatory
compliance, and taxes are viewed as
the three biggest challenges for middle
market firms, and all are expected to be
high priority items for the new president.
The latest survey results indicate a
sunnier economic outlook than in recent
years, despite relatively little change in
expectations for sales or hiring – firms
will look for regulatory relief to drive
growth in the bottom line.
Middle Market
Highlights
Regional Challenges
• 44% of Middle Market firms (sales
$10-$500 million) feel the economy
has improved over the past six
months, up significantly from the
17% reading a year ago. Only 4%
say the U.S. economy has weakened,
well bellow the year-ago reading.
• 64% of metro NYC firms and 54%
of Mid-Atlantic firms expect their
regional economies to outperform,
while Upstate New York and Central
Pennsylvania are more pessimistic
Commercial Real Estate
•
70% expect the U.S. economy to
accelerate over the next six months,
nearly triple the 24% reading in Q1
2016.
• 54% say the U.S. economy has
improved over the past six months,
up from 19% a year ago. 11% say
the economy has decelerated, down
from 17% in last year’s survey.
• Unit sales growth improved modestly,
with a net 45% expecting sales to
increase in the next six months,
versus 35% last year.
• 67% of CRE firms expect the national
economy to improve in the next six
months, up from 27% a year ago.
•
Capital investment plans improved,
with a net 42% planning to hike
capex vs. 35% a year ago.
•
Hiring expectations were largely
unchanged despite renewed business
optimism, with a net 26% of firms
planning to hire new employees.
•
Healthcare costs and government
regulations were cited as the biggest
challenges for companies, followed
by business tax rates and hiring and
retaining qualified employees.
“How do you expect the
national economy to perform
over the next six months?”
Middle Market Companies
70%
60%
54%
50%
66%
30%
20%
10%
3%
6%
45%
25%
Decelerate
5%
24%
6%
0%
20%
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
2010 2011 2012 2013 2014 2015 2016 2017
24%
20%
23%
15%
6%
10%
5%
0%
©2017 M&T Bank. Member FDIC. Equal Housing Lender. (2/17) www.mtb.com
15%
30%
30%
10%
46%
50%
35%
22%
6%
•
Expectations for CRE transaction
volume stabilized from a year earlier
but remain below the 2010-2015
norm.
40%
47%
37%
40%
70%
59%
52%
•
The outlook for rental rates was
somewhat more downbeat than a
year ago, with 15% of respondents
expecting rates to fall.
“How have your expectations for
economic growth changed since the
presidential election on November 8th?”
All Survey Respondents
Improve
80%
•
Expectations for the CRE industry
improved somewhat, with a net 36%
expecting conditions to improve, but
industry optimism remains below
2010-2015 levels
Substantially
increased
Moderately
increased
No change
from previous
expectations
Moderately
decreased
3%
Substantially
decreased
M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2017
“How would you rate the current state of the
U.S. economy compared to six months ago?”
Middle Market Companies
Economic Sentiment Returns to Survey Norm
Near-Term Outlook Improves Significantly
Perceptions of current economic performance have
markedly improved in wake of the presidential election
Expectations of a more friendly business environment
under President Trump have boosted business optimism
80%
54%
60%
50%
57%
39%
40%
“How do you expect the national economy
to perform over the next six months?”
Middle Market Companies
46%
36%
44%
41%
Better
29%
30%
70%
54%
60%
52%
66%
50%
30%
6%
10%
3%
6%
Q1
2011
Q1
2012
16%
0%
Q1
2010
Q1
2013
4%
17%
4%
Q1
2015
Q1
2016
Q1
2017
10%
Q1
2014
Worse
27%
22%
48%
48%
16%
6%
PA
Mid-Atlantic
12%
13%
35%
29%
28%
25%
20%
15%
10%
15%
14%
15%
NYC Metro
Q1
2016
Q1
2017
Despite a large uptick in business sentiment, respondents’
expectations for their own industry are unchanged
60%
53%
58%
54%
46%
50%
49%
45%
47%
23%
16%
16%
Q1
2013
Q1
2014
12%
Q1
2015
20%
Improve
10%
11%
10%
14%
10%
10%
12%
10%
12%
Deteriorate
0%
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
“Which of the following best describes your firm’s capital
equipment spending plans over the next six months?”
Net Percentage Expecting Higher Capex Spending
50%
38%
40%
32%
42%
36%
36%
35%
Q1
2014
Q1
2015
Q1
2016
30%
26%
20%
12%
Decrease
Q1
2016
47%
Expectation of Deregulation and Lower Taxes Boost Capex
0%
Q1
2012
Q1
2015
Nearly half of respondents plan to boost capital spending, while only 7%
expect capex to decline in the next six months
Increase
27%
19%
10%
Q1
2011
Q1
2014
“What are your expectations for your own
industry over the next six months?”
Middle Market Companies
5%
20%
5%
Q1
2010
Q1
2013
30%
A net 11% of respondents expect inventory
stockpiles to increase in the next six months
25%
24%
40%
Inventory Investment Rises Slightly
27%
Q1
2012
70%
“Looking ahead six months, how do you
expect your inventory levels to change?”
Middle Market Companies
30%
Q1
2011
6%
5%
Industry Expectations Remain Steady
54%
25%
Upstate NY
Q1
2010
Deteriorate
10%
0%
64%
3%
% Saying
Worse
Than U.S.
3%
6%
Moderately Better
28%
25%
6%
10%
Middle Market Companies
The Mid-Atlantic and NYC
regions expect to outperform
the U.S. average, while Upstate
NY and PA see slower growth
30%
22%
20%
“How do you expect the economy in your metro area to
perform relative to the U.S. over the first half of 2017?”
Substantially Better
Improve
47%
37%
40%
20%
70%
59%
Q1
2017
©2017 M&T Bank. Member FDIC. Equal Housing Lender. (2/17) www.mtb.com
10%
19%
0%
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2017
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2017
“Which of the following best describes your firm’s
employment plans over the next six months?”
Middle Market Companies
“Adjusting for normal seasonal ups and downs in your business cycle,
what do you expect to happen to the real volume (number of units)
of goods and services that you will sell during the next six months?”
Net Percentage Expecting Higher Unit Sales
Hiring Pace Largely Unchanged
Unit Sales Show Moderate Improvement
Business optimism does not appear to be
translating into job growth in the near-term
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
29%
32%
32%
31%
32%
Sales expectations have not shifted nearly as
much as national economic optimism
55%
31%
28%
Hire
Additional
Workers
21%
50%
52%
11%
9%
Q1
2011
4%
5%
6%
Q1
2012
Q1
2013
Q1
2014
2%
Q1
2015
4%
Q1
2016
2%
Reduce
Employment
38%
35%
Q1
2017
Q1
2010
51%
50%
44%
39%
40%
Better
19%
30%
10%
10%
5%
7%
10%
Q1
2011
Q1
2012
Q1
2013
4%
5%
Q1
2014
Q1
2015
11%
Worse
17%
0%
Q1
2010
Q1
2016
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Q1
2017
“What are your expectations for your own
industry over the next six months?”
Commercial Real Estate Companies
74%
60%
50%
60%
54%
57%
38%
40%
30%
20%
11%
10%
5%
5%
4%
Q1
2011
Q1
2012
Q1
2013
15%
9%
5%
Q1
2014
Q1
2015
Q1
2016
81%
67%
Q1
2017
49%
Improve
13%
Deteriorate
63%
60%
67%
69%
Improve
44%
27%
16%
4%
5%
3%
Q1
2010
Q1
2011
Q1
2012
Q1
2013
9%
3%
24%
Q1
2014
Q1
2015
Q1
2016
11%
Deteriorate
Q1
2017
Lease-Up Expectations Largely Unchanged
A net 19% of respondents expect lease up activity to rise,
while about half expect occupancy to remain flat
50%
66%
54%
Q1
2015
Commercial Real Estate Companies
Just under half of respondents expect CRE industry conditions
to improve—up from 38% a year ago but below 2010-15 readings
70%
Q1
2014
“Looking ahead six months, how do you expect your
occupancy rates to change from their current levels?”
Industry Outlook Positive But Below Prior Year Norm
80%
Q1
2013
Two-thirds of respondent expect the economy to
accelerate during the first half of 2017
54%
59%
Q1
2012
Near-Term Expectations Improve as Well
68%
70%
Q1
2011
“How do you expect the national economy
to perform over the next six months?”
Commercial Real Estate Companies
More than half say the economy has improved,
while only 1-in-10 feel the economy has slowed
80%
35%
30%
CRE Respondents See Similar Rebound
20%
45%
45%
“How would you rate the current state of the
U.S. economy compared to six months ago?”
Commercial Real Estate Companies
50%
47%
40%
Q1
2010
60%
48%
48%
46%
44%
49%
41%
40%
33%
32%
30%
26%
20%
23%
10%
31%
6%
Q1
2011
Q1
2012
Increase
16%
16%
15%
35%
10%
19%
20%
Q1
2014
Q1
2015
Q1
2016
Decrease
0%
0%
Q1
2010
Q1
2016
Q1
2017
©2017 M&T Bank. Member FDIC. Equal Housing Lender. (2/17) www.mtb.com
Q1
2010
Q1
2013
Q1
2017
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2017
“What are your expectations for cap rates
over the next six months?”
Commercial Real Estate Companies
“Adjusting for normal seasonal ups and downs, what do you
expect to happen to rental rates during the next six months?”
Commercial Real Estate Companies
Rental Rate Forecasts Continue to Moderate
Cap Rate Expectations Rise To Post-Recession High
A net 23% expect rental rates to rise, down significantly
from the 47% net reading two years ago
Rising real estate prices and expected increases in interest rates
are putting upward pressure on cap rates
70%
54%
60%
50%
36%
40%
30%
43%
38%
42%
39%
10%
7%
15%
10%
5%
7%
7%
38%
Increase
19%
20%
15%
10%
Decrease
0%
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
60%
Increase
60%
Q1
2016
Q1
2017
“What are your expectations for the volume of commercial
real estate transactions nationally over the next six months?”
Commercial Real Estate Companies
50%
40%
30%
33%
42%
6%
20%
14%
15%
13%
13%
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2015
Q1
2016
Q1
2017
9%
0%
Q1
2014
Regulatory scrutiny has tempered some of the appetite for CRE
lending, but most firms still have ample access to capital
Regional Lenders
66%
66%
56%
48%
50%
51%
42%
31%
30%
29%
10%
5%
4%
Q1
2010
Q1
2011
Q1
2012
2%
Q1
2014
Decrease
26%
Q1
2016
Q1
2017
“To what degree are you experiencing difficulty finding qualified
applicants to fill open positions requiring experience?”
All Respondents
More than 4-in-5 firms are having troubling filling positions that
require prior experience, including 31% reporting significant difficulty
Some
difficulty
15%
31%
20%
Q1 Q1
11 13
Q1 Q1
15 17
2%
Q1 Q1
11 13
Q1 Q1
15 17
Q1 Q1
11 13
Q1 Q1
15 17
Very
Insufficient Sufficient
Insufficient
Q1 Q1
11 13
Q1 Q1
15 17
Q1 Q1
11 13
Q1 Q1
15 17
Q1 Q1
11 13
Q1 Q1
15 17
Very
Insufficient Sufficient
Insufficient
“To what degree are you experiencing difficulty finding
qualified applicants to fill open entry-level positions?”
All Respondents
Experienced Labor Hard to Find as Job Market Tightens
No
Difficulty
22%
4%
2%
Q1
2015
78%
75%
Increase
0%
Q1
2013
Capital Markets
55%
40%
7%
Decrease
“How do you feel about the availability of CRE financing
from the following sources over the next six months?”
70%
10%
13%
16%
20%
10%
38%
Credit Remains Accessible For Most CRE Firms
Transaction Volume Outlook Stabilizes
20%
27%
Commercial Real Estate Companies
After a precipitous drop in 2016, expectations for transaction
volume have edged up but remain below the 2010-15 norm
60%
26%
24%
Significant
difficulty
54%
©2017 M&T Bank. Member FDIC. Equal Housing Lender. (2/17) www.mtb.com
Entry-Level Positions Also Difficult to Fill
Many firms are having trouble filling entry-level
positions as the labor force participation rate has fallen
No
Difficulty
22%
23%
55%
Significant
difficulty
Some
difficulty
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2017
“In general, what are your plans for managing employee wage
and salary increases over the next year?”
“How have your expectations for economic growth changed
since the presidential election on November 8th?”
All Respondents
All Respondents
Compensation Expectations Mostly Unchanged
Election Outcome is Key Driver For Renewed Optimism
A slightly higher percentage of respondents plan to increase
compensation by at least 2%, reflecting the tightening job market
60%
40%
30%
20%
54%
49%
15%
50%
17%
14%
50%
Q1 2017
40%
46%
45%
15%
35%
30%
25%
20%
24%
20%
23%
15%
11% 11%
10%
0%
Q3 2016
23%
23% 21%
Roughly 2-in-3 respondents think that President Trump will deliver
faster economic growth, while only 9% expect slower growth
6%
10%
5%
0%
Hold wage and
salary structure
flat
Increase less
than 2%
Increase by
2% to 3%
Increase by
more than 3%
Substantially
increased
Moderately
increased
No change
from previous
expectations
Moderately
decreased
3%
Substantially
decreased
Percent of Respondents Who Consider Issue to be a Major
Challenge for Their Business
“Which of the following actions do you expect to take in
response to changes to the Affordable Care Act?”
All Respondents
All Respondents
Healthcare Costs, Regulation Are Biggest Challenges
Affordable Care Act Seen as Limiting Wage Growth
Level of business taxes and finding qualified employees also
viewed as significant challenges for many businesses
Some respondents also plan to reduce headcount, suspend
hiring or limit capital investments
65%
Healthcare Costs for Labor
57%
Complying with Government Regulations
40%
Level of Business Taxes
37%
Hiring and Retaining Qualified Employees
27%
Wage Growth
Attract and Retaining Customers
24%
Competition from Large Businesses
23%
21%
Regional Economic Conditions
13%
National Economic Conditions
Access to Credit
25%
23%
15%
20%
15%
13%
10%
10%
23%
9%
5%
0%
Reduce/Suspend
Hiring
Workforce
Reduction
7%
Reduce Wage
Growth for Current
Employees
Reduce New
Capital
Investments or
Expansion
ABOUT M&T: M&T Bank is a multi-state community-focused bank serving New York, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and Washington, D.C. Founded in 1856, M&T Bank provides banking, investment, insurance and mortgage financial services to consumer, business and government clients.
SURVEY METHODOLOGY: An Internet survey was conducted by M&T during December 2016 and January 2017 among senior
managers and owners of mid-sized businesses located throughout the Bank’s geographic footprint. A total of 401 responses were received,
consisting of 345 Middle Market enterprises (annual sales $10 million to $500 million) and 56 Commercial Real Estate investors/lessors.
M&T has conducted the survey since mid-2009.
DISCLAIMER: This newsletter has been prepared by the Commercial Banking Division of M&T Bank and is not a product of any of
M&T’s other affiliates, including any of its registered investment advisors. The views herein are provided for informational purposes
only and may differ from those of other departments or divisions of M&T Bank and its affiliates. The information is not intended as
specific advice or recommendations and should be viewed as merely representative of a broad range of possible outcomes.
For additional information about survey results, please contact:
Gary Keith
VP - Regional Economist
Commercial Planning & Analysis
(716) 848-4725
[email protected]
©2017 M&T Bank. Member FDIC. Equal Housing Lender. (2/17) www.mtb.com
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