Most Areas of State Optimistic about Early 2014 Prospects First Quarter 2014 Outlook
Alabama businesses remain cautiously optimistic about their prospects in the first quarter of 2014. Although the Change from Alabama Business Confidence Index™ (ABCI) is down a Alabama Q4 2013 modest 0.7 points to 51.2, sentiment is positive overall 51.2
-0.7
ABCI for the third consecutive quarter. That’s a much better outlook than the pessimistic 45.4 recorded a year ago. National Economy 47.8
-2.6
Concerns about the U.S. economy continue to constrain Alabama Economy 53.8
-2.2
business expectations, particularly in the Huntsville metro Industry Sales 54.1
-0.2
area. At 53.8, the Alabama economic outlook is 6.0 points above the outlook for the national economy. Industry Profits 52.3
0.8
Industry sales and profits are expected to improve in Industry Hiring 49.6
-1.2
the first quarter of 2014; sales gains should be about the same as last quarter and profits growth could be slightly Capital Expenditures 49.9
1.5
better. However, the pace of hiring and capital spending Index above 50 indicates positive outlook. is not forecasted to pick up statewide. Index below 50 indicates negative outlook. Businesses in construction, manufacturing, and financial activities have the most positive outlooks for first quarter Business Environment Expectations 2014. Industry sentiment in healthcare; trade; and trans‐
Q1 2014 compared to Q4 2013 portation, information, and utilities is negative overall. Mobile remains the most optimistic metro area with an Business Confidence in U.S. Economy Pulls Back The ABCI of 56.2 and the strongest outlooks for sales, profits, outlook for the national economy slipped 2.6 points to 47.8 and hiring. Montgomery confidence is second at 55.4 and on the first quarter 2014 ABCI survey, indicating that on all indicators are positive. ABCI Birmingham‐Hoover came average executives expect a modestly worse performance in at 53.2, with a flat hiring forecast, but moderate gains in than in the fourth quarter. Still, about 64 percent of other business measures. Huntsville panelists continue to panelists forecast no change or some improvement in have a negative outlook; area confidence registered 44.9. economic growth this quarter. The U.S. outlook at the start of 2014 is much better than the 38.4 reading going into TM
2013. While construction and financial activities concerns 100
see the national outlook as a positive, businesses in health‐
care; professional, scientific, and technical services; and 90
wholesale trade expect national economic conditions and policies to negatively impact their industries. 80
ABCI National and Alabama Economy 70
56.8
Index
60
50
45.5
50.8
50.2 48.3 45.4 47.7
52.9 51.9 51.2
Much Better
40
Somewhat Better
30
Remain the Same
20
1.8
1.8
Much Worse
0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014
National
33.9
26.9
44.1
35.7
18.5
Somewhat Worse
10
Alabama
32.2
1.8
3.5
Percent First Quarter 2014, Volume 13, Number 1
Industry Performance Expectations Q1 2014 compared to Q4 2013 Sales Strong Increase
2.2
Moderate Increase
38.3
36.6
No Change
Moderate Decrease
19.4
Strong Decrease
3.5
0
10
20
30
40
50
60
Profits Strong Increase
2.2
Moderate Increase
53.8
50
47.8
45
35
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014
Sales and Profits Expectations versus Prior Quarter 65
4.4
10
60
20
30
40
50
60
Sales
Index 0
Hiring Plans Strong Increase
Prospects for Sales Steady, Profits Outlook Improving Sales are expected to pick up on average at about the same pace as in fourth quarter 2013. The index value of 54.1 indicates moderate improvement; 40.5 percent of panelists forecast an increase in first quarter 2014 sales versus 22.9 percent anticipating a decrease. Alabama’s construction, manufacturing, and financial activities sectors are the most optimistic about prospective sales trends. The profits outlook brightened slightly this quarter, increasing 0.8 points to 52.3. About 74 percent of respon‐
dents expect profit trends to be the same or stronger than in the fourth quarter. Expectations for profits are the highest among firms in construction, manufacturing, and financial activities. However, 25.5 percent of panelists forecast weaker earnings, particularly in healthcare and the transportation, information, and utilities sector. 21.1
Strong Decrease
United
States
40
37.4
Moderate Decrease
Alabama
55
34.8
No Change
0.9
Moderate Increase
22.5
54.1
55
52.3
50
45
No Change
Profits
53.7
Moderate Decrease
40
19.8
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014
3.1
Strong Decrease
0
10
20
30
40
50
60 Capital Expenditures Strong Increase
3.1
21.6
Moderate Increase
52.9
No Change
Moderate Decrease
16.7
Strong Decrease
5.7
0
10
20
30
Percent 2
Expectations versus Prior Quarter 60
Index State’s Economic Growth Seen Continuing at Modest Pace Business executives expect Alabama’s economy to expand modestly in the first quarter of 2014. Although down 2.2 points, the index reads 53.8, with almost 80 percent of panelists anticipating growth at the same or a stronger rate than in the fourth quarter. That’s a much better outlook than the value of 46.7 a year ago and marks the third consecutive quarter of optimism about the direction of Alabama’s economy. Recent economic data and ongoing developments in manufacturing and other industries support this forecast. Businesses created about 8,000 nonfarm jobs in 2013, total employment rose by almost 10,000, and unemployment improved from 7.3 to 6.6 percent. Still, cutbacks in federal spending and in government employment continue to constrain growth, particularly in the Huntsville area. U.S. and Alabama Economy 40
50
60
From the ABCI Panelists Poll (Nov.‐Dec. 2013):
How do you use the quarterly ABCI results? General indicator of local/regional outlook 83.5% Compare to personal projections 62.4% Background info for forecasting/planning 43.5% Share results with others 31.8% Decision making/short‐term planning 27.1% Note: Respondents could choose multiple responses.
Center for Business and Economic Research, The University of Alabama | ABCITM
ABCITM History: Still Trying to Sustain Momentum 68.7
70
65
60
Index Hiring and Capital Investment Not Expected to Pick Up Only modest job gains are expected in the first quarter of 2014; the index slipped 1.2 points to 49.6. Although CBER forecasts stronger job growth of around 1.3 percent during 2014, business executives are indicating that statewide the pace of hiring is not likely to pick up in the first quarter. Almost 54 percent forecast no change in hiring plans. Most job creation will be at construction and manufac‐
turing firms, with modest growth in payrolls in retail trade and financial activities. Businesses in healthcare, wholesale trade, and transportation, information, and utilities are pessimistic about employment trends. Among the large metro areas, job prospects should be best in Mobile and Montgomery. Hiring in the Birmingham‐Hoover metro should be around its fourth quarter 2013 level, while Huntsville expects further tightening. With the index at 49.9, capital investment statewide is likely to be about the same as in the fourth quarter. While 52.9 percent of executives surveyed expect no change in capital spending, the 5.7 percent forecasting a strong decrease is keeping the index below 50. The Huntsville area’s very negative reading of 38.8 is pulling down the statewide average; investment outlooks in the Birmingham‐Hoover and Montgomery metros are significantly higher this quarter, while the Mobile forecast is stable. The construction and manufacturing industries should see strong gains in capital spending. 55
50
51.2
45
40
35
31.5
30
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Industry Outlooks Mixed Alabama business executives in construction and manufacturing expect moderately strong improvement on all aspects of their business fundamentals during the first quarter of 2014. Sales and profits should be looking up for firms in financial activities; other services; and professional, scientific, and technical services. While the outlook in this last industry is very negative in the Huntsville area, panelists elsewhere are quite optimistic. Industry expectations are generally weak, however, in healthcare; trade; and transportation, information, and utilities this quarter. ABCI by Industry, First Quarter 2014 Hiring and Capital Expenditures Expectations versus Prior Quarter Q1 2014 Change from
Q4 2013 Construction 59.0
5.7
Manufacturing 54.9
1.8
49.9
Transportation/Information/Utilities 45.8
-7.5
49.6
Wholesale Trade 46.1
-3.3
Retail Trade 48.6
7.3
Finance/Insurance/Real Estate 54.4
-1.1
Professional/Scientific/Tech Services 49.9
-0.8
Healthcare Services 42.3
-5.3
All Other Services 51.3
-0.6
56
54
Index 52
50
Hiring
48
46
44
Capital Expeditures
42
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014
Industries in Depth, First Quarter 2014 Component
Index
Construction
Manufac.
Transp./Info./
Utilities
Wholesale
Trade
Retail
Trade
Fin./Insur./
Real Estate
Prof./Sci./
Technical
Healthcare
All Other
Services
Sales
63.5
57.4
43.1
50.0
44.4
56.6
54.4
48.2
56.1
Profits
61.5
56.6
43.1
48.3
47.2
56.6
51.3
39.3
53.0
Hiring
55.8
56.6
44.4
41.7
52.8
51.0
48.1
37.5
50.0
Capital Spending
57.7
57.4
50.0
40.0
47.2
52.6
48.1
39.3
47.0
Center for Business and Economic Research, The University of Alabama | ABCITM
3
ABCI and Component Indexes by Area, First Quarter 2014 Metro Areas Alabama Birmingham Huntsville Mobile Montgomery National Economy 47.8
48.2
42.3
48.6
56.1
Alabama Economy 53.8
54.0
48.5
61.1
56.8
Industry Sales 54.1
56.3
47.3
61.1
56.1
Industry Profits 52.3
54.5
45.8
59.0
53.8
Industry Hiring 49.6
49.6
46.9
54.2
53.0
Capital Expenditures 49.9
56.7
38.8
53.5
56.8
ABCI 51.2
53.2
44.9
56.2
55.4
Mobile and Montgomery Metros Most Optimistic At 56.2 confidence is highest in the Mobile area for the third consecutive quarter. ABCI Mobile slipped 1.8 points from its fourth quarter reading, however, as sentiment about the U.S. economy fell almost five points and other indicators were flat or declined slightly. Area firms are quite positive about sales and profits and are the most optimistic about hiring. Montgomery’s index rose 1.1 points to 55.4 as the capital investment outlook moved up 6.2 points and out‐
looks for the U.S. economy, profits, and hiring improved. Birmingham‐Hoover business executives remain optimistic—the area ABCI is about the same as in the fourth quarter at 53.2. Although hiring prospects are now flat, expectations for sales, profits, and capital investment all improved. Huntsville’s business community does not yet foresee a rebound—the area ABCI is only 44.9, a decrease of 0.9 points from last quarter. Concerns about the impact of U.S. government spending on area businesses continue to depress Huntsville outlooks. Firms are likely to put capital investments on hold this quarter—that component index for Huntsville dropped 3.2 points to just 38.8. Small Business Optimism Jumps The state’s small businesses with fewer than 20 employees eclipsed the larger firms as the most optimistic about their first quarter 2014 prospects. Overall confidence climbed 3.5 points to 54.5 with every indicator positive and, with the exception of capital spending, higher than for larger firms. Small businesses are the likely job creators this quarter, with a net 12.8 percent planning to boost hiring. Midsize businesses, employing 20 to 99, and large firms with 100 or more employees saw parallel declines in confidence looking at first quarter prospects. Expectations for the national and Alabama economies fell by more than four points and the overall ABCIs slipped around 2.6 points. Hiring could slow this quarter, while investment trends will be mixed. Still, the state’s large businesses have a slightly positive outlook overall with an ABCI of 50.9 and expectations for mild improvement in sales, profits, and capital spending. Midsize firms are modestly negative in their outlooks, as indicated by an ABCI of 48.1. Their evaluation of the national economy is very negative this quarter. ABCI and Component Indexes by Firm Size, First Quarter 2014 Number of Employees 0 to 19 20 to 99 100 and over National Economy 51.1
43.5
48.2
Alabama Economy 57.1
50.4
53.6
Industry Sales 58.6
52.5
51.2
Industry Profits 56.1
49.3
51.5
Industry Hiring 52.9
46.7
49.1
Capital Expenditures 51.4
46.4
51.8
ABCI 54.5
48.1
50.9
The Center for Business and Economic Research would like to thank the 227 Alabama business executives who completed the first quarter 2014 ABCI survey during the first two weeks of December. This survey marks the 49th consecutive quarter of the ABCI. We encourage you to return during the first two weeks of March to record your opinion about economic prospects and industry performance looking ahead to the second quarter of 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