®
First Quarter 2004 • Volume 3 • Number 1
BLCI Barometer
The increasing strength of economic growth across the nation
in 2004 will bring an improved
environment for Alabama businesses. Consumer spending
should be sustained by job
gains as productivity enhancements push their limits.
Growth in corporate profits
will help boost business investment, particularly in information technology. And low
business inventories coupled with the growing
export market resulting from a weak dollar should
provide the impetus for increased industrial production. While Alabama’s state government finances
remain in dire straits, fiscal stimuli at the federal
level will contribute to economic growth.
Over 78 percent of Alabama
business leaders expect technology needs in their industry to
grow in 2004. Rising profits
often linked to productivity
gains that result from technology
investment are helping to create
new demand for technology—
particularly computers, software,
and communications equipment.
Technology needs in 2004 are
expected to be greatest in services, where 89 percent of industry
panelists expect demand to rise.
Alabama manufacturers are least
likely to see a need for additional technology, with just 53.6 percent anticipating an increase.
Alabama Business Leaders Confidence Index
The BLCI is a quarterly online survey completed by
business leaders across Alabama who volunteer as
panelists. Equal weights are given to expectations for
the national and state economies and industry sales,
100
100
80
78.2
60
40
21.8
20
0
Yes
No
BLCI
80
60 58 56
Index
Confidence among Alabama business leaders that
quarterly economic growth will accelerate is at its
highest level of the two years the survey has been
administered. The first quarter 2004 BLCI of 67 is
six points above the fourth quarter 2003 consensus
and nine points higher than the reading of 58 a year
ago. Overall, positive sentiment about the course of
both the national and Alabama economies is substantially above last quarter. The outlook for sales is
robust, with about 78 percent of panelists forecasting
sales increases in their industry. Rising profits will
also be a strong contributor to economic activity in
the first quarter and over half of BLCI panelists
anticipate higher capital expenditures in their industry. Although still the weakest component of growth,
the hiring outlook has brightened considerably, with
close to half of survey respondents expecting their
industry to add jobs during first quarter 2004.
Do you expect the
demand for technology in your industry
to increase over the
next 12 months?
Percent
ALABAMA
61 61
67
40
20
0 Q1 Q2 Q3 Q4 Q1
2003
2004
profits, hiring plans, and capital expenditures for the
current quarter compared to the previous quarter.
Center for Business and Economic Research, The University of Alabama
The National Economy
National Economic Outlook
Q1 2004 compared to Q4 2003
60
40
20
0
The Alabama Economy
0.3
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
80
Q1 2004 compared to Q4 2003
67.1
60
40
22.4
20
0
1.2
2
5.6
3.8
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Interest Rates
Interest Rates
80
Q1 2004 compared to Q4 2003
55.3
60
Percent
With the federal funds target rate at just 1.0 percent
since June and economic growth strengthening,
Alabama business leaders do not see any downside to
interest rates in the first quarter of 2004. The majority (55.3 percent) expect interest rates to hold steady
through the quarter, while 44 percent think rates
could rise. In its December 9, 2003 decision to leave
the rate unchanged, the Federal Open Market
Committee cited the effectiveness of an accommodative monetary policy coupled with productivity growth
in supporting economic activity. Some forecasters
think a hike could come in late June, while others
expect no change this year.
2.4
13.2
8.2
Alabama Economic Outlook
Percent
Although not as rosy as the national picture, the Alabama economic outlook for first quarter 2004 offers a
marked improvement over fourth quarter 2003 expectations. The 70.9 percent of BLCI panelists forecasting
accelerating state economic activity is the highest in
survey history. This reading is over 24 percentage points
higher than last quarter and compares to just 49 percent
expecting gains a year ago. New automobile manufacturer and supplier jobs should begin to kick in this quarter, while jobs in services are expected to pick up and
trade employment could build on the relative stability
of 2003. Although proposals to trim state budgets will
affect both state and local government jobs, these
impacts will be felt later in the year. Just 6.8 percent
of respondents think the Alabama economy could turn
down in the first quarter.
75.9
80
Percent
Given third quarter 2003 U.S. GDP growth estimated at
8.2 percent and indications that fourth quarter gains
should come in above those in the first half of the year,
Alabama business leaders are upbeat in their outlook for
the national economy early in 2004. Eighty-nine percent
of panelists expect the U.S. economy to strengthen in the
first quarter, including 13.2 percent anticipating substantial improvement. This compares to about 73 percent
forecasting a pickup in the national economy last quarter
and contrasts sharply with just 59.6 percent expecting
gains a year ago. The first quarter 2004 reading reflects
the highest positive sentiment since the inception of the
BLCI survey two years ago. Fewer than 3 percent of panelists think a decline in national economic activity is likely during the quarter.
43.5
40
20
0
0.0
0.6
0.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
C e n t e r f o r B u s i n e s s a n d E c o n o m i c R e s e a rc h
Industry Sales
Industry Sales
80
Q1 2004 compared to Q4 2003
71.5
60
Percent
BLCI panelists are most optimistic about prospects for
first quarter sales growth. Overall, 78 percent anticipate
higher sales, a sizeable increase from 67 percent in fourth
quarter 2003 and over 22 percentage points higher than a
year ago. With consumer spending continuing to support
growth, business inventories low, a weak dollar facilitating
exports, and business spending on equipment and software coming off a strong performance in 2003, there
seems to be a number of avenues for sales growth.
Respondents in professional, scientific, and technical services, retail trade, and finance, insurance, and real estate
(FIRE) are most optimistic, with over 82 percent forecasting sales gains. Expectations are weakest in transportation, communication, and public utilities (TCPU), where
two-thirds see sales gains, but 16.7 percent think sales
could decline during first quarter 2004.
40
20
0
9.1
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Profits
80
continued on next page
Q1 2004 compared to Q4 2003
60.9
Percent
60
40
22.4
20
0.6
9.7
6.5
0 Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Hiring
Industry Hiring Plans
80
Q1 2004 compared to Q4 2003
60
Percent
Expectations among Alabama business leaders confirm
that jobs will likely remain the weakest link in the expansion during the first quarter of 2004. Still, the prospects
for job creation are the highest since the survey's inception
in the first quarter of 2002. The 48.5 percent of panelists
expecting to increase hiring is almost 13 percentage
points higher than last quarter and compares to just 26.9
percent a year ago. Respondents in miscellaneous services
are most optimistic about hiring, with 69 percent expecting to add jobs this quarter. Some industries see below
average prospects for job growth—as major industrial
projects near completion, just 35.7 percent of panelists in
construction see hiring increasing. With new automotive
industry firms just beginning to hire in the first quarter,
6.5
0.3
Industry Profits
Rising profits should be a strong contributor to the economic equation in the first quarter of 2004. Over 67 percent of Alabama business leaders expect profits in their
industry to increase during the quarter, almost 10 percentage points above last quarter and 16 points higher than
sentiment a year ago. In many industries, investments in
information technology are boosting productivity and consequently increasing profits. This trend is expected to
strengthen in 2004. Panelists in finance, insurance, and
real estate (FIRE) are most optimistic about profit growth,
with almost 75 percent expecting gains. Recent manufacturing productivity gains may leave firms less sure of an
upside to profits—57.2 percent of manufacturing industry
panelists expect profits to increase in first quarter 2004,
while 16.1 percent forecast a decrease. Profit forecasts in
construction and TCPU are also seven to nine points
below average.
12.7
45.6
44.1
40
20
0
1.8
5.6
2.9
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
C e n t e r f o r B u s i n e s s a n d E c o n o m i c R e s e a rc h
3
from previous page
41.1 percent of manufacturing panelists think their
industry will add jobs. Only 7.4 percent of respondents think jobs in their industry could decline during
the quarter—the lowest negative in two years of BLCI
surveys.
Industry Capital Expenditures
Industry Capital Expenditures
80
Q1 2004 compared to Q4 2003
60
Percent
Rising profits and an emphasis on productivity
enhancement should contribute to increased capital
spending. For the first time in two years, more then
half (58.6 percent) of Alabama business leaders expect
capital expenditures in their industry to rise during
the quarter. This compares with 47.9 percent predicting an increase in fourth quarter 2003 and is 14 percentage points above a year ago. Expectations are
highest in health care services, where 76.5 percent of
panelists expect investment to increase, followed by
miscellaneous services and public administration.
Capital investment may be less widespread in professional, scientific, and technical services, with 45.6 percent predicting a rise, and in manufacturing, at 51.8
percent forecasting an increase. Across industries,
only 7.4 percent of survey participants expect cuts in
capital investment during the first quarter.
51.5
40
34.1
20
0
1.5
5.9
7.1
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
BLCI Panelists
The Business Leaders Confidence Index panel
continues to grow. The number of panelists completing the first quarter 2004 survey was the largest since
the inception of the BLCI in first quarter 2002.
Participants are from all major industry groups across
Alabama’s 11 metropolitan areas and many nonmetro
counties and represent a range of small, midsize, and
large companies. On the current survey, 15.9 percent
of participating firms reported annual sales under $1
million, while 20.3 percent had sales of $1 to $5
million, 36.8 percent were in the $5 to $50 million
range, and 27 percent tallied sales over $50 million.
Ranked by employment size, one third of first quarter
panelists were from firms with fewer than 20 employees, while just over a quarter employed 20 to 99, 22.9
percent reported 100 to 499 workers, and 17.9 percent
had at least 500 employees.
For more details on the Alabama Business Leaders Confidence Index, visit www.blcindex.com/alabama/.
For more details on the Center for Business and Economic Research, visit cber.cba.ua.edu.