First Quarter 2009 • Volume 8, Number 1
For the fourth consecutive year, panelists were asked
about compensation plans. The challenges confronting
businesses are reflected in the picture painted by the 2009
results. Many employees will find their wages and salaries
either flat or declining, while increases will generally be
below 3 percent. Year-end 2008 bonuses were much
smaller than in recent years. And many firms are considering curtailing or freezing hiring, laying off employees,
or reducing hours during the year.
70
National Economic Outlook
60
Q1 2009 compared to Q4 2008
55.7
40
30
25.2
20
11.7
10
7.4
0.0
0
THE OUTLOOK
100
National Economy
25.3
80
Alabama Economy
33.8
70
Industry Sales
36.6
Industry Profits
33.6
Industry Hiring
30.6
90
60
50 47.2
40
42.9 42.7 44.3
31.5
30
20
0
Capital Expenditures 29.2
BLCI
10
31.5
Index above 50 indicates expansion.
Q1 Q2 Q3 Q4
2008
Q1
2009
increase from previous quarter
decrease from previous quarter
First Quarter Outlook for U.S. Economy Challenging The component index measuring expectations for U.S. economic conditions
fell 16.7 points to 25.3 for the first quarter of 2009. A reading below
50 indicates contraction and, with the index close to half of that value,
the nation is expected to sink much farther into the recession that
officially began in December 2007. About 81 percent of panelists
think the U.S. economy will perform worse than in fourth quarter
2008, including 25 percent forecasting much worse conditions. The
crises in credit and housing markets, declining consumer spending,
and job losses, joined by dropping exports and nonresidential construction, contribute to the pessimism. Forecasting group IHS Global
Insight anticipates a decline in real GDP of around 5.4 percent during
the first quarter, with weak positive growth in the second half of 2009
as fiscal stimulus measures begin to stabilize the economy. At 18 to
24 months in length, this recession will be the longest and the most
global of the post-war period.
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
Stressed Consumer Reining in Alabama Economy Business
leaders lowered their forecast for economic conditions in the state to a
component index reading of 33.8 for the first quarter of 2009, down 14.2
points from the previous quarter. Over 69 percent of panelists expect the
Alabama economy to worsen, although only 6 percent foresee a steep
decline. While spending on national defense is helping some areas
weather the recession, much of the state is being negatively impacted by
the slumping manufacturing sector. Combined sales of Alabama-made
vehicles in 2008 were down 19.2 percent from 2007 and, with December
2008 sales 53 percent below a year ago, the gloomier outlook for 2009
has some firms reducing their workforces and cutting hours. A total of
15,400 jobs were lost in November as unemployment rose to 6.1 percent.
Declining revenues threaten state and local government funding for public
education and other services—total tax collections for the quarter ending
in December were 5.7 percent below the same period a year ago and
sales taxes receipts dropped a larger 10.6 percent.
Alabama Economic Outlook
Q1 2009 compared to Q4 2008
63.1
70
60
50
Percent
Percent
50
Alabama
BLCI
Index
Business Confidence Shows Steep Decline Alabama
panelists expect the business environment to worsen in
the first quarter of 2009. At 31.5 the Alabama Business
Leaders Confidence Index® (BLCI) is down 12.8 points
from the fourth quarter of 2008. The deepening recession
resulted in strong decreases in both the national and state
economy component indexes this quarter. Alabama, which
had weathered the downturn relatively well through mid2008, saw its fortunes fall as the financial crisis and resulting tight credit took hold. The weakening economy dealt a
sharp blow to the state’s manufacturing industries, in particular the automotive sector. As consumers retrenched,
retailers and government services that depend on tax revenues were impacted across the state. The four industry
indicators all dropped substantially, with hiring and capital
expenditures seeing the largest declines.
40
30
20.5
20
10
0
10.4
6.0
0.0
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
THE UNIVERSITY OF ALABAMA
70
Q1 2009 compared to Q4 2008
60
46.8
Percent
50
40
30
20
22.9
16.6
13.0
10
0.7
0
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Capital Expenditures
Q1 2009 compared to Q4 2008
60
Percent
50
36.9
40
30
27.6
27.2
20
10
0
2
8.0
0.3
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
40
30
20.6
20
18.9
13.0
10
0.3
0
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Corporate Profits Continue to Slip The general decline in corporate
profits, which Alabama panelists saw beginning in the state in the first
quarter of 2008, is expected to accelerate during the first quarter of
2009. The profits component index value of 33.6 is down almost 10
points from the prior quarter, with over 63 percent of respondents
forecasting a decrease in profits and just 13.7 percent anticipating an
increase. Reductions in consumer spending, which typically accounts
for around 70 percent of GDP, are resulting in steep profit declines in
the consumer discretionary sector that encompasses retailers of nonessential goods, including motor vehicles. Alabama’s retail businesses
are the most pessimistic about their profits for the first quarter, with 70
percent forecasting a decrease and an index of 26.2. Prospects are
also particularly gloomy for profits in manufacturing and wholesale trade.
Profit expectations are strongest for professional, scientific, and
technical services and healthcare.
Job Losses Expected to Accelerate Employment prospects are
looking much worse for the first quarter of 2009; the hiring component
index sank 12.3 points to 30.6. Just 7 percent of firms surveyed plan
to add to payrolls and about 30 percent will maintain current staffing
levels. However, 62.8 percent of businesses foresee job reductions
during the quarter, including 22.6 percent anticipating a strong decrease. A comparison with the previous quarter, when 37 percent of
firms planned to trim payrolls, shows how much worse the job picture
looks early in 2009. The outlook is weakest for retail trade and other
services, with hiring component indexes of 25, and for manufacturing
where the first quarter hiring index is 26.5 and over 71 percent of
respondents expect workforce reductions. Job prospects are best in
healthcare and in professional, scientific, and technical services, where
at least half of businesses anticipate maintaining or increasing
employment.
70
47.2
50
Industry Hiring
70
Q1 2009 compared to Q4 2008
60
50
Percent
Industry Profits
70
Industry Sales
Q1 2009 compared to Q4 2008
60
Percent
Sales Weak Across Industries Early in 2009 Fewer than one in five
panelists expects an increase in sales in their industry during the first
quarter. Over 60 percent anticipate a decrease, although just 13 percent
think the drop will be severe. At 36.6 the sales component index is down
9.7 points from fourth quarter 2008. Job losses, coupled with declines in
housing and investment wealth are contributing to a somber mood for
consumers. The Conference Board’s Consumer Confidence Index fell
from 44.7 in November 2008 to 38 in December, the lowest reading
since its inception in 1967. Manufacturers will be particularly hard-hit,
with over 67 percent of Alabama panelists in the industry anticipating
lower sales in the first quarter of 2009. Retailers expect the poor holiday
sales environment to persist into 2009; 25 percent forecast a strong
decrease in sales this quarter, while 40 percent think the decrease will
be moderate. Healthcare and professional, scientific, and technical
services should see relatively small sales declines.
40.2
40
30.2
30
22.6
20
6.3
10
0
0.7
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Capital Expenditures Drop Sharply Investment spending could see
the steepest decline of the four industry components—the index fell 14.1
points to 29.2 for the first quarter of 2009. In the present atmosphere of
weak demand and tight credit, few businesses are likely to undertake
expansion or replacement projects. Only 8.3 percent of panelists think
capital expenditures in their industry will increase during the quarter,
while around 27 percent forecast no change. At 64.5 percent, the share
of respondents anticipating a decrease in spending is up from 40.9
percent in fourth quarter 2008 and includes 27.6 percent foreseeing a
strong decrease. Aided by national defense-related projects, the professional, scientific, and technical sector should perform better, with
just half of firms expecting to cut back on capital spending. However,
around 70 percent of panelists in manufacturing and retail trade anticipate reducing expenditures during the first quarter.
Center for Business and Economic Research, The University of Alabama
Topical Question Series: Revisiting Alabama Compensation Issues
2009 marks the fourth consecutive year that the first quarter BLCI survey has measured compensation trends. The current
economic climate prompted the addition of a new question this year that assesses how firms are responding to the recession
in terms of employment and employee compensation.
Raises Meager or Nonexistent in 2009 The majority of Alabama workers are not likely to see an increase in compensation
in 2009. Among the panelists completing the first quarter 2009
BLCI survey, 35.8 percent expect employee wages and other
compensation (excluding benefits) to be the same as in 2008,
while 17.1 percent anticipate a decrease. The severity of the
current recession is reflected in the contrast with the three
previous years when at most 3.3 percent of respondents saw
their firm spending less on compensation than in the prior year
and fewer than 20 percent planned to hold compensation to its
current level. For employees who do see an increase in 2009,
raises will generally fall between 0.1 and almost 3 percent—a
reduction from the 2 to almost 4 percent range awarded most
frequently from 2006 to 2008. Just 14.4 percent of businesses
in the survey forecast employee compensation gains of 3 percent or more in 2009; this is in sharp contrast with 2008 when
about 41 percent expected increases in that range and 2007
when the share was over 47 percent.
What portion of the change in total compensation
will each of these categories comprise?
Merit/performance increase 42.2%
Other 4.5%
Granting of stock options 1.8%
2008 year-end bonus 10.5%
Cost of living adjustment 40.9%
Size of Bonuses Down at Year-End 2008 About 69 percent of
businesses completing the first quarter 2009 BLCI survey were
offering bonuses to their employees at the end of 2008—about
the same share as a year ago. Average bonuses will be much
smaller, however, reflecting the deteriorating economy and its
negative impact on business income and profits. Half of
bonuses amounted to less than 3 percent of employee wages
in 2008 compared to about 30 percent in this range at year-end
2007. This includes 26.9 percent equaling less than 1 percent
of salary; a sharp contrast to 11.9 percent last year. At the high
end, 16.4 percent of 2008 bonuses were in the 9 percent or
more range, down from 28.4 percent at year-end 2007. Although
smaller, bonuses are surviving as a way to reward and retain
high performers in this challenging economic environment.
Over the next year do you expect employee
compensation* in your firm to:
Decrease
17.1
Stay the same
35.8
Increase 0.1-1.99%
12.6
Increase 2-2.99%
16.7
Increase 3-3.99%
8.9
Increase 4-4.99%
3.1
Increase 5% or more
2.4
Don’t know
3.4
0
10
20
Percent
30
40
*Compensation excludes benefits.
Distribution of Compensation Increases Similar to 2008
Wage and salary hikes based on merit and/or performance will
be the largest component of raises in 2009, accounting for an
average 42.2 percent of the total. This is up just slightly from
the 41.9 percent share reported for 2008. Cost of living
adjustments are expected to contribute an average of 40.9
percent to the package, down from 41.4 percent last year.
Companies that follow the federal standard of basing cost of
living adjustments on the change in the CPI for Urban Wage
Earners and Clerical Workers (CPI-W) through the third quarter
compared to a year ago were faced with a 5.8 percent increase
for 2009, despite the fact that the CPI-W began to decline in
September 2008. Bonuses decreased in importance to average
10.5 percent of the change in compensation at year-end 2008
compared to 12.9 percent a year earlier. Stock options will
amount to just 1.8 percent of the gains in 2009. Other types
of compensation noted include restricted stock grants, commissions, signing bonuses, profit sharing, and comp time.
Sixty-two percent of businesses plan to use more than one
form of compensation in their total package.
If your firm offers a year-end bonus, what
percentage of employee wages does it average?
26.9
Less than 1%
1-2.99%
22.9
3-4.99%
18.4
5-6.99%
10.9
7-8.99%
4.5
9% or more
16.4
0
5
10
15
20
Percent
25
30
35
Center for Business and Economic Research, The University of Alabama
3
Are you planning or considering any of the following**
Firms Reducing Employment and Hours to Cut Costs
in order to contain compensation and benefit costs?
While many companies continue to provide wage and salary
increases to their workers, they are increasingly doing so at
Hiring freeze
58.4
the expense of employee hiring and retention. Given the
Employee layoffs
current economic environment, over 58 percent of Alabama
41.6
businesses in the first quarter 2009 BLCI survey report that
Decreasing or eliminating
37.8
they are planning or considering implementing a hiring freeze
bonuses
and 22.7 percent indicate they will hire below replacement
Reducing employee hours
32.4
level. While prospects do not seem good for job seekers,
Cutting back on or shifting
employed workers also have reason for concern—41.6
24.4
healthcare costs to employees
percent of firms indicate that they are looking at laying off
Hiring below replacement level
22.7
employees. And as many as a third of workers who keep
Broadening performance
their jobs could see their income drop as businesses respond
7.1
compensation differentials
to cost pressures or weak demand by reducing hours. A
7.6
Other
number of companies are also considering containing costs
by decreasing or eliminating bonuses (37.8 percent) or
0 10 20 30 40 50 60 70
reducing their share of employee healthcare costs (24.4
Percent
percent). Retaining high performers is an essential element
**Panelists could choose more than one response.
of surviving difficult times; however, just 7.1 percent of firms
are contemplating broadening performance compensation
including freezing or reducing salaries, replacing permanent jobs with
differentials. Businesses noted other cost-saving measures
temps, and eliminating profit sharing.
Component Index by Area, Q1 2009
Q1 2009
Alabama
Change from Q4 2008
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
25.3
-16.7
24.6
28.0
25.5
26.6
Alabama Economy
33.8
-14.2
31.0
33.0
39.1
35.5
Industry Sales
36.6
-9.7
34.5
42.3
40.6
33.9
Industry Profits
33.6
-9.9
31.1
39.4
33.8
32.3
Industry Hiring
30.6
-12.3
30.1
41.4
31.2
26.6
Capital Expenditures
29.2
-14.1
26.3
34.6
29.7
26.6
BLCI
31.5
-12.8
29.6
36.4
33.3
30.2
Alabama BLCI by Component and Area The recession is
expected to deepen in the first quarter of 2009, with the national
economy index posting the largest decline of the six components
that make up the BLCI. Alabama’s index also dropped substantially as the state became increasingly caught up in the downturn.
Hiring and capital spending are expected to be hit particularly
hard early in 2009, with businesses reining in costs. Sales will
continue to contract, negatively impacting profits, hiring, and
capital spending.
Indexes for all four major metro areas dropped markedly on
the first quarter 2009 survey. Mobile, which had been the most
optimistic in the fourth quarter, posted the steepest decline, losing
17.2 points to a reading of 33.3 as pessimism about profits and
hiring grew. Still, the Mobile metro is seeing growing business
at its new container terminal and in its shipbuilding industry.
Huntsville reported the highest BLCI at 36.4, down 9.2 points
from last quarter. BRAC and other national defense and
aerospace-related growth is supporting hiring and sales at the
metro area’s many professional, scientific, and technical firms.
The BLCI for the Birmingham-Hoover metro fell 13.6 points to
29.6, the lowest reading of the metros. Expectations for the
national and Alabama economies were the weakest among
the four areas, with Birmingham’s sizeable banking, real estate,
and construction sectors contributing to this pessimism. While
Huntsville added 2,200 jobs between November 2007 and November 2008, Birmingham-Hoover lost 2,900. Despite gaining
1,000 jobs during this period, the Montgomery area is looking
toward likely cuts in state government employment as weak
tax revenues force the state to scale back spending. The
Montgomery BLCI slid 8.6 points to 30.2 this quarter and
hiring expectations are the weakest of the four metros.
Thank you to the 300 Alabama business leaders who
completed the first quarter 2009 BLCI survey during the first
two weeks of December 2008. Please join us in the first two
weeks of March for the second quarter 2009 survey at
www.blci.com/alabama.
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.