First Quarter 2007 • Volume 6, Number 1
Panelists’ confidence in the performance of their respective
industries during the next several months improved overall. All
four industry indicators rose from their fourth quarter values, led
by a modest rebound in hiring expectations. Sales will continue
to be the strongest contributor to growth. While business
leaders are most likely to forecast increases in sales and profits,
hiring and capital expenditures are generally expected to follow
their fourth quarter 2006 trends.
50
Q1 2007 compared to Q4 2006
40
39.6
29.4
30
26.8
20
10
3.0
0
Much
Worse
1.1
Somewhat Remain Somewhat Much
Worse the Same Better
Better
THE OUTLOOK
100
National Economy
48.4
80
Alabama Economy
56.2
Industry Sales
56.1
Industry Profits
54.0
40
Industry Hiring
53.1
20
Capital Expenditures 54.1
60
59.3 61.4 58.9
54.2 53.6
BLCI
0
Q1 Q2 Q3 Q4 Q1
2006
2007
53.6
Index above 50 indicates expansion.
increase from previous quarter
decrease from previous quarter
Pessimism about U.S. Economy Rises The outlook for the U.S.
economy is slightly below the midpoint on the first quarter 2007 survey.
At 48.4, the component index is down 2.7 points from its fourth quarter
2006 value and indicates stagnant growth. For only the third time in
survey history, pessimists outnumber optimists—32.4 percent of
panelists think the national economy could worsen during the first
quarter, while 27.9 percent expect it to improve. Almost 40 percent
anticipate that conditions will be about the same as in the fourth quarter
of 2006. The housing decline and its ripple effects on consumer
spending and on industries that are closely tied to housing will likely be
most pronounced in the first half of the year. Global Insight, a global
economic consulting and forecasting firm, expects real GDP growth to
weaken from around 2.4 percent in the fourth quarter to 2.0 percent in
the first quarter of 2007. The Federal Reserve held interest rates steady
in December, expressing concern over the cooling housing market.
Alabama Economy Improving at a Slower Pace Business leaders
remain optimistic about prospects for the Alabama economy in the first
quarter of 2007. The state component index value of 56.2 indicates
expansion, with just 13.6 percent of panelists expecting economic
conditions to be worse than in the fourth quarter of 2006 and 36.6 percent
forecasting improvement. However, an increase in the share of panelists
expecting state economic growth to be unchanged from the prior quarter
contributed to a decline of 3.0 points in the component index. Although
growth is expected to slow from its 2006 pace, Alabama’s economy should
outperform the nation’s in 2007. Continued growth in auto supplier plants,
as well as strength in shipbuilding and aerospace industries could counter
weakness in wood products and textile and apparel manufacturing
industries, while gains in services will offset losses in the finance,
insurance, and real estate (FIRE) sector. The state’s housing market is
expected to hold up fairly well, with low unemployment rates and job
growth attracting people to the state. Alabamians have more to spend as
state personal income growth has outpaced that of the nation in recent
months.
Alabama Economic Outlook
Q1 2007 compared to Q4 2006
49.8
50
40
34.7
Percent
Percent
National Economic Outlook
Alabama
BLCI
Index
Business Optimism Continues to Weaken The Alabama
Business Leaders Confidence Index® (BLCI) decreased for the
third consecutive quarter to a reading of 53.6, indicating that
the economy will expand at a slower rate in the first quarter
of 2007. An index value of 50 marks the division between
improving and deteriorating economic conditions. Lowered
expectations for the national and state economies resulted in
a decline of 0.6 points in the index from its fourth quarter
2006 value. Alabama’s economy is expected to continue to
outperform the nation’s. While the state should see moderate
growth, panelists forecast very slow growth with the possibility
of contraction for the U.S. economy.
30
20
13.6
10
0
1.9
0.0
Much
Worse
Somewhat Remain Somewhat Much
Worse the Same Better
Better
Center for Business and Economic Research, The University of Alabama
30
20
10
34.7
30
23.4
20
10
4.2
1.9
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
0
Service Industries Expected to Lead Profit Gains Profits are expected
to improve modestly across Alabama industries in the first quarter of 2007.
At 54.0, the profits component index is up 0.4 points from the fourth
quarter 2006 reading. Almost 39 percent of the state business leaders
surveyed expect profits in their industry to increase during the first quarter,
while 25.3 percent forecast a decrease. At the national level, the pace of
profit growth is expected to slow markedly in 2007 as continued weakness
in housing cools the economy. Alabama’s housing market is expected to
hold up well; however, wage pressures from tight labor markets could cut
into profit margins. More than half of panelists in professional, scientific,
and technical services and in other services (including leisure and
hospitality services) forecast profit growth for their industry during the first
quarter. In most other industries, panelists generally expect to maintain
current profit levels, with the exception of retail trade, where a decline in
profits is forecasted.
Job Growth Less Robust than a Year Ago Alabama will continue to add
jobs early in 2007, but the pace of job growth is likely to be slower than it
was during the first quarter of 2006. The hiring plans component index
registered 53.1 for first quarter 2007, up 1.4 points from the prior quarter,
but 2.9 points below its value a year ago. Almost half of BLCI respondents
expect no change in hiring plans during the quarter, while 31.7 percent
forecast an increase. Most manufacturers (61.5 percent) expect hiring to
continue at its fourth quarter 2006 pace; just 23.1 percent forecast an
uptick. Manufacturing jobs will largely come from new and expanding
automotive suppliers, other transportation equipment companies, and
defense contractors. Hiring plans are most upbeat in services, while retail
trade panelists forecast a strong decrease in hiring and wholesale trade and
FIRE are expected to see moderate declines.
Industry Hiring Plans
Q1 2007 compared to Q4 2006
49.4
50
40
28.7
30
20
15.5
10
3.4
Industry Capital Expenditures
Q1 2007 compared to Q4 2006
50
42.3
40
Percent
34.3
30
20
16.6
10
3.8
0
2
3.8
2.3
Percent
35.8
27.2
22.6
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Q1 2007 compared to Q4 2006
40
Percent
40
Industry Profits
50
0
Industry Sales
Q1 2007 compared to Q4 2006
44.1
50
Percent
Moderate Sales Growth Continues Sales trends are generally positive
across Alabama industries, with almost 48 percent of panelists forecasting
an increase in sales during the first quarter of 2007 compared to about
25 percent expecting a decline. The sales component index registered
56.1, up 0.1 points from last quarter. Generally strong business and
employment conditions in the state should continue to support consumer
spending growth, overriding any weakness in housing markets. National
defense-related service and manufacturing industries will be an important
component of sales gains. Export growth trends could also bolster sales.
At least half of panelists in health care; professional, scientific, and
technical services; other services; and retail and wholesale trade expect
sales in their industry to improve in the first quarter. Finance, insurance,
and real estate, affected by consolidation in the banking industry and the
housing slowdown, is the only sector anticipating a contraction in sales.
3.0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
0
3.0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Capital Spending Continues to Support Growth Capital expenditures
should help sustain the Alabama economy during the first quarter of 2007.
The component index value of 54.1 is up 0.5 points from the prior quarter
and indicates a modest pick-up in investment activity. Nationally, relatively
high utilization rates and competitive pressures are among factors driving
investment in structures and equipment. Nonresidential construction
should continue the rebound that began in 2006. Building by aerospace,
automotive, national defense, and biotech businesses is contributing to
activity in areas across the state. Hotel, retail, and health care are among
other sectors with ongoing construction projects. Over 37 percent of
panelists expect investment activity in their industry to increase during the
first quarter. The investment outlook is most robust among professional,
scientific, and technical firms; construction companies; and in retail trade.
Transportation, information, and public utilities is least likely to see capital
investment growth.
Center for Business and Economic Research, The University of Alabama
Topical Question Series:
Alabama Trends in Employee Compensation
Compensation to Rise for Most Workers Alabama business
leaders who responded to the first quarter 2007 survey are
generally upbeat about employee compensation (excluding
benefits) in 2007, with 83.7 percent expecting an increase at
their firm during the year. This compares to 81 percent of
employers nationwide planning an increase on a recent
Careerbuilder.com survey. Most increases will be between
2 and almost 4 percent—25.5 percent of panelists are planning
increases in the 2 to 2.99 percent range and 26.2 percent expect
increases to range from 3 to 3.99 percent. Another 20.2 percent
of employees will see compensation rise 4 percent or more.
Compensation will be flat for 1 in 8 of Alabama’s workers, while
just 2.7 percent may see a decrease. Overall the average
increase in worker compensation is expected to be higher this
year. In 2006, 19.9 percent of firms expected no change
compared to 12.5 percent in 2007, while 46.4 percent of firms
are planning an increase of 3 percent or more this year versus
38.1 percent last year.
Over the next year do you expect employee
compensation* in your firm to:
Decrease
2.7
Stay the same
12.5
Increase 0.1-1.99%
11.8
Increase 2-2.99%
25.5
Increase 3-3.99%
26.2
Increase 4-4.99%
10.3
9.9
Increase 5% or more
Don’t know
1.1
0
5
10
15
20
25
30
Percent
*Compensation excludes benefits.
What portion of the change in total compensation
will each of these categories comprise?
A 2006 year-end bonus
10.1%
Merit/performance increase
Granting of stock options
43.2%
1.8%
Other
4.4%
Cost of living adjustment
40.5%
Size of Bonus Varies Widely About 39 percent of
firms represented in the fourth quarter BLCI panel
planned to offer bonuses as part of their compensation at year-end 2006. Many bonuses were small,
with 23.2 percent of respondents expecting bonuses
to average less than 1 percent of wages. Some
Alabama workers had their income generously
augmented by a year-end bonus, however. Bonuses
were expected to average 9 percent or more of
wages at 21.6 percent of companies and between 5
and 8.99 percent at 19.1 percent of firms that give
bonuses.
Merit Increases Outweigh Cost of Living Adjustments
Just over 43 percent of the change in total compensation
will result from increases based on merit/performance,
while cost of living adjustments should account for 40.5
percent. This is in line with the current emphasis on the
importance of merit, as companies are increasingly
segmenting their workforces based on performance.
The share of compensation coming from cost of living
adjustments is up from 30.5 percent last year, driven by
consumer price inflation estimated at 3.2 percent in 2006.
Year-end bonuses are expected to account for just 10.1
percent of compensation gains in 2007—a steep drop
from a 21.7 percent share last year. Indications are that
holiday bonuses are becoming less widespread, while
rewards for performance may take the form of merit
increases or bonuses. Few Alabama firms include stock
options in their compensation packages. Other forms of
compensation noted by panelists include incentives and
investments to keep good employees. Most companies
(71.6 percent) include more than one form of compensation in their package.
If your firm offers a year-end bonus, what percentage
of employee wages does it average?
Less than 1%
23.2
17.0
1-2.99%
19.1
3-4.99%
10.3
5-6.99%
8.8
7-8.99%
21.6
9% or more
0
5
10
15
20
Percent
25
30
Center for Business and Economic Research, The University of Alabama
3
Alabama BLCI by Component and Region Losses of close
to three points in both the national and Alabama economy
components of the index were partially countered by modest
increases in all four industry indicators on the first quarter 2007
survey. As a result, the BLCI was off just 0.6 points from its
fourth quarter 2006 value.
Business optimism continued to run highest in the Mobile metro
area with a first quarter 2007 BLCI of 58.5, although the index
dropped 0.9 points from the previous quarter. Aerospace,
shipbuilding, and shipping industries should continue to grow,
and the Retirement Systems of Alabama’s Battle House Hotel
and Office Tower are expected to open in downtown Mobile in
the spring. Huntsville’s BLCI registered a state-average 53.6,
down 4.1 points from the previous quarter. Aerospace and
defense-related companies are strong, with expansions planned
or underway at a number of firms to accommodate growth from
the implementation of BRAC recommendations.
Birmingham was the only major metro area to see an increase in
the BLCI this quarter; the index rose 0.3 points to 52.8. Although
banking job losses loom, new industry announcements will bring
jobs in manufacturing and services and the area’s health care
and research sectors continue to expand. Montgomery panelists
remained the least optimistic group, with the area BLCI falling 2.9
points to 49.0. Area growth was moderate in 2006 and new job
prospects in the first quarter appear limited.
Component Index by Area, Q1 2007
Q1 2007
Alabama
Change from Q4 2006
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
48.4
-2.7
46.4
45.4
55.4
44.7
Alabama Economy
56.2
-3.0
55.7
58.0
62.5
47.7
Industry Sales
56.1
0.1
56.0
54.5
60.1
51.5
Industry Profits
54.0
0.4
54.2
57.1
56.0
49.2
Industry Hiring
53.1
1.4
51.3
54.5
60.7
50.0
Capital Expenditures
54.1
0.5
53.4
51.8
56.6
50.8
BLCI
53.6
-0.6
52.8
53.6
58.5
49.0
Alabama BLCI History The first quarter of 2007 begins the sixth year
that Alabama business leaders have gone online and completed the
quarterly BLCI survey. Each survey is open during the last month of
a quarter and asks panelists to register their expectations for the
upcoming quarter compared to the current quarter. The number of
respondents varies as the survey depends on voluntary participation.
Panelists come from a wide range of firms representing small, midsize,
and large businesses across industry sectors and across the state.
Alabama BLCI History
70
65
60
55
The survey history indicates changing expectations for improving or
declining economic conditions. Since its inception in the first quarter
of 2002, the BLCI value has remained above the neutral point of 50.
This parallels actual results as the economy has not been in recession
since 2001.
Please join us in March for the Second Quarter 2007 survey at
www.blci.com/alabama.
53.6
50
45
40
Q1/2002 Q1/2003 Q1/2004 Q1/2005 Q1/2006 Q1/2007
Analysis provided by Carolyn Trent, Socioeconomic Analyst,
Center for Business and Economic Research, The University of Alabama.
The BLCI is a
Compass on Business
initiative created in
collaboration with:
For more details on the Alabama Business Leaders Confidence Index®, visit www.blci.com/alabama.
For more details on the Center for Business and Economic Research, visit cber.cba.ua.edu.