Alabama Businesses Maintain Mildly Positive Outlook After a strong increase last quarter, business expectations settled down on the fourth quarter 2013 ABCI survey. The statewide index slipped 1.0 point to 51.9, indicating modest expansion. At this level, Alabama business optimism is 3.6 points above a year ago, but 1.6 points below the historical average of 53.5 over 48 survey quarters. While U.S. economic growth should be about the same as in the third quarter, Alabama’s economy is forecasted to pick up moderately. Expectations for the state have been above those for the nation since the second quarter 2005. Among industry indicators, only hiring plans improved this quarter. A slight increase in job growth is indicated with the hiring index at 50.8. Sales should increase moderately, despite declining expectations. On average, firms anticipate modestly higher profits. Capital expendi‐
tures are likely to be below third quarter levels overall. The financial activities sector has the most positive outlook again this quarter and most other industries are at least slightly optimistic. However, panelists in trade and healthcare see all aspects of their business as flat or declining in the fourth quarter. Huntsville area business confidence remains in negative territory at 45.8. In the other large metros, fourth quarter optimism is positive despite slight declines: ABCI Mobile is on top at 58.0, followed by Montgomery with 54.3, and Birmingham‐Hoover at 53.3. ABCITM 100
90
80
70
Index
50
45.5
50.8
Fourth Quarter 2013 Outlook
Alabama Change from Q3 2013 ABCI 51.9 ‐1.0 National Economy 50.4 ‐0.2 Alabama Economy 56.0 0.8 Industry Sales 54.3 ‐3.5 Industry Profits 51.5 ‐1.7 Industry Hiring 50.8 0.8 Capital Expenditures 48.4 ‐2.3 Index above 50 indicates positive outlook. Index below 50 indicates negative outlook. Business Environment Expectations Q4 2013 compared to Q3 2013 Executives Hold on to Slight Optimism about U.S. Economy The U.S. economy index managed to stay positive looking ahead to the fourth quarter, slipping just 0.2 points to 50.4. The last time two consecutive readings were above 50 was in the first half of 2011, prior to falling almost 10 points as the debt ceiling crisis hit. With federal budget and debt ceiling issues looming again, a positive reading now sug‐
gests that the national economy may be in better shape to withstand the current challenges. Overall, 44.4 percent of executives expect the national economy to continue to grow at its third quarter pace and a net 5.6 percent forecast improvement. However, the U.S. outlook is generally negative among Alabama’s midsize businesses and for Huntsville area firms. National and Alabama Economy 56.8
60
50.2 48.3 45.4 47.7
52.9 51.9
Much Better
40
0.4
0.0
Alabama
37.1
Somewhat Better
30
30.6
49.2
44.4
Remain the Same
20
12.9
Somewhat Worse
21.0
10
Much Worse
0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2011 2012 2013
Q4
National
0.4
4.0
Fourth Quarter 2013, Volume 12, Number 4
Percent U.S. and Alabama Economy Businesses Optimistic about Alabama Economy Almost half of business executives taking the fourth quarter 2013 ABCI survey expect the state’s economy to expand at the same pace as last quarter, while 37.5 percent forecast stronger growth. The Alabama economy index rose a modest 0.8 points to 56.0, a much better reading than the value of 49.7 seen a year ago in fourth quarter 2012. Developments in the motor vehicle and parts manufac‐
turing industries are boosting manufacturing employment growth. Other sectors that have helped keep monthly nonfarm employment above year‐ago levels during 2013 include administrative support, social assistance, accom‐
modation and food services, and state and local education. Still, a 1.5 percent increase in sales tax revenues through 11 months of the current fiscal year indicates that economic conditions continue to challenge the state’s consumers. Expectations versus Prior Quarter 60
56.0
Index 50.4
Pace of Sales and Profit Growth to Slow At 54.3 the sales component index forecasts overall moderate improvement in sales, despite being down 3.5 points from its third quarter reading. Holiday spending could be stronger this year than last; the fourth quarter 2012 sales index was lower at 51.1. While 39.5 percent of Alabama business executives expect sales in their industry to increase this quarter, 22.2 percent forecast a decline. Sales prospects are strongest in manufacturing and in finance, insurance, and real estate, where close to half of panelists expect an increase in the fourth quarter. The sales outlook is also positive for firms in construction; professional services; transportation, information, and utilities; and in other services. Profits are likely to post weak gains in the fourth quarter, on average. The profits index slipped 1.7 points to 51.5, with 43.6 percent of business executives forecasting no change from last quarter and only a net 7.2 percent expecting profits to increase. Financial activities firms are the most optimistic about prospective earnings this quarter. Firms in construction, manufacturing, and other services anticipate at least weak profit growth. However, the other industries surveyed expect industry profitability to decline during the fourth quarter of 2013. Sales 1.6
37.9
38.3
20.6
Strong Decrease
1.6
0
10
20
30
40
50
60
60
Profits Strong Increase
1.6
Moderate Increase
30.2
No Change
43.6
Moderate Decrease
21.8
Strong Decrease
2.8
0
10
20
30
40
50
Hiring Plans Strong Increase
0.4
Moderate Increase
21.0
No Change
Sales and Profits Expectations versus Prior Quarter 62.1
Moderate Decrease
65
14.5
2.0
Strong Decrease
0
10
60
20
30
40
50
60
Sales
Index Capital Expenditures Strong Increase
2.0
21.0
Moderate Increase
55
54.3
50
51.5
45
No Change
Profits
51.6
Moderate Decrease
40
19.4
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013
6.0
Strong Decrease
0
10
20
30
40
50
60
Percent 2
Moderate Decrease
United
States
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013
Q4 2013 compared to Q3 2013 No Change
45
35
Industry Performance Expectations Strong Increase
50
40
Moderate Increase
Alabama
55
Center for Business and Economic Research, The University of Alabama | ABCITM
ABCITM History: Positive but Lower in Fourth Quarter 68.7
70
65
60
55
50
Index Hiring Outlook Improves but Capital Spending Turns Down At 50.8 the hiring index forecasts a modest pick‐up in job growth; this is the first reading over 50 since the second quarter of 2012 and is much better than the 48.7 of a year ago. About 62 percent of business executives expect to hire at the same level as last quarter and a positive net 4.9 percent plan to boost hiring this quarter. Strongest job gains could come from manufacturers—
while about 59 percent anticipate no change in hiring from last quarter, a net 11.8 percent expect the pace of hiring to increase. In every industry sector, the majority of panelists indicate that their fourth quarter hiring plans are the same as last quarter, particularly for healthcare and wholesale trade. Job prospects are improving in financial activities; transportation, information, and utilities; construction; and professional and other services. A difficult environment for long‐range planning could be weighing on the willingness of Alabama firms to commit more funds to capital investment. After briefly moving above 50 last quarter, the capital expenditures index fell back into negative territory, down 2.3 points to 48.4. While 51.6 percent of panelists expect to maintain current levels, a net negative 2.4 percent think investment will be lower. Capital spending should increase moderately among businesses in transportation, information, and utilities. Modest gains are anticipated in manufacturing and financial activities. All other industries expect to cut back on investment in the fourth quarter. 51.9
45
40
35
31.5
30
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
ABCI by Industry, Fourth Quarter 2013 56
54
Index 52
50.8
50
Hiring
48
48.4
46
44
Capital Expeditures
42
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013
Q4 2013 Change from
Q3 2013 Construction 53.3 ‐0.7 Manufacturing 53.1 1.6 Transportation/Information/Utilities 53.3 ‐3.1 Wholesale Trade 49.4 ‐5.4 Retail Trade 41.3 ‐2.3 Finance/Insurance/Real Estate 55.5 ‐5.9 Professional/Scientific/Tech. Services 50.7 5.0 Healthcare Services 47.6 1.1 All Other Services 51.9 ‐2.2 Expectations versus Prior Quarter Most Industry Outlooks at Least Mildly Optimistic The financial activities sector continues to have the most positive outlook at 55.5, despite a drop in the index of almost 6 points. Manufacturing confidence improved to 53.1 and hiring prospects are now the strongest among the industries tracked by the ABCI. Professional services firms seem to expect more stability this quarter, with increased sales and modest hiring. However, industry prospects remain broadly negative in healthcare and retail trade and fell into negative territory for the wholesale trade industry. Hiring and Capital Expenditures Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Industries in Depth, Fourth Quarter 2013 Component
Index
Construction
Manufac.
Transp./Info./
Utilities
Wholesale
Trade
Retail
Trade
Fin./Insur./
Real Estate
Prof./Sci./
Technical
Healthcare
All Other
Services
Sales
55.0
57.4
52.5
50.0
43.2
58.5
54.7
45.8
54.6
Profits
53.3
51.5
48.8
46.4
43.2
58.5
49.0
43.8
53.5
Hiring
51.7
52.9
52.5
48.2
40.9
52.1
50.5
43.8
51.7
Capital Spending
48.3
51.5
56.2
46.4
34.1
51.1
48.4
45.8
44.2
Center for Business and Economic Research, The University of Alabama | ABCITM
3
ABCI and Component Indexes by Area, Fourth Quarter 2013 Metro Areas Alabama Birmingham Huntsville Mobile Montgomery National Economy 50.4
50.0
45.6
53.5
54.1
Alabama Economy 56.0
57.3
49.3
62.5
59.9
Industry Sales 54.3
55.2
47.5
62.5
57.0
Industry Profits 51.5
52.6
43.5
60.4
52.3
Industry Hiring 50.8
52.6
47.1
55.6
51.7
Capital Expenditures 48.4
52.2
42.0
53.5
50.6
ABCI 51.9
53.3
45.8
58.0
54.3
Sales Expectations Weaken, Hiring Plans Improve across Metro Areas With an ABCI of 58.0, Mobile is showing the most optimism of the state’s large metros. Although Mobile area business prospects dipped a slight 1.0 points, strong growth in sales and profits is forecasted, as well as moderate gains in hiring and investment. Montgomery business confidence ranked second again this quarter at 54.3, down 2.3 points. While area sales should post fairly strong gains, fourth quarter increases in profits, hiring, and capital spending will be modest. Birmingham‐Hoover businesses remain optimistic in the fourth quarter, although the area ABCI slipped 1.1 points to 53.3. Sales are expected to increase moderately and profits should post modest gains. Growth in hiring and investment could be better than last quarter. While up a slight 0.1 points, ABCI Huntsville is in negative territory at 45.8, making six consecutive quarters that Huntsville area businesses have been generally pessimistic about their prospects. Firms are most concerned about profits and are planning to further reduce capital investment as federal spending uncertainties continue. Large Firms Remain the Most Optimistic, Midsize the Least Alabama businesses employing 100 or more remained the most optimistic looking ahead to the fourth quarter, although their ABCI slipped 0.7 points to 53.6. These larger firms are the most positive about the economic environ‐
ment and industry prospects with all indicators over 50. They are also the most likely to increase hiring this quarter. Sentiment among the state’s midsize businesses with 20 to 99 employees rose 0.1 points to 50.7, a mildly positive reading overall despite negative assessments of the U.S. economy and capital expenditures in the fourth quarter. These firms are the least optimistic, although sales are expected to grow moderately and profits and hiring could pick up slightly. The fourth quarter outlook for Alabama’s smallest businesses, employing fewer than 20, is mixed. Every indicator fell on the recent survey. The ABCI is down 2.2 points, but still in positive territory at 51.0. Sales could increase moderately and profits should be slightly better than last quarter. However, hiring is likely to be lower this quarter and capital expenditures could drop sharply. ABCI and Component Indexes by Firm Size, Fourth Quarter 2013 Number of Employees 0 to 19 20 to 99 100 and over National Economy 50.3
47.9
52.5
Alabama Economy 54.6
54.6
58.6
Industry Sales 54.2
53.9
55.0
Industry Profits 51.6
50.7
51.8
Industry Hiring 49.7
50.7
51.8
Capital Expenditures 45.8
46.4
51.8
ABCI 51.0
50.7
53.6
The Center for Business and Economic Research would like to thank the 248 Alabama business executives who completed the fourth quarter 2013 ABCI survey during the first two weeks of September. This survey marks the 48th consecutive quarter of the ABCI. We encourage you to sign on at cber.cba.ua.edu/ABCI during the first two weeks of December to record your opinion about economic prospects and industry performance looking ahead to first quarter 2014. Analysis provided by Carolyn Trent, Socioeconomic Analyst, Center for Business and Economic Research, The University of Alabama. TM
For more details on the Alabama Business Confidence Index , visit cber.cba.ua.edu/ABCI For information on the Center for Business and Economic Research, visit cber.cba.ua.edu 4
Center for Business and Economic Research, The University of Alabama | ABCITM