State Business Confidence Shows Strong Improvement Alabama businesses are solidly optimistic about their prospects in the second quarter of 2014. The Alabama Business Confidence Index™ (ABCI) rose 4.4 points to 55.6, its highest level of the last eight quarters. All six components of the index improved this quarter. The economic environment should generally be supportive of business growth. Outlooks for the U.S. and Alabama economies are both positive. At 58.4 the state index is above the national economy reading of 52.5, making 39 consecutive quarters of higher state outlooks. Panelists in most industries are bullish about second quarter sales trends and moderately optimistic about profits. But firms may be hesitant to invest in growth just yet. Hiring is likely to increase only slightly, while capital expenditures could post moderate gains. Businesses in financial activities, construction, and other services have the most positive outlooks for the second quarter. Manufacturing; transportation, information, and utilities; and wholesale trade are close behind, with weaker hiring outlooks. Industry ABCI readings for professional services, retail trade, and healthcare remain negative. Confidence increased in the four large metro areas. Montgomery passed Mobile as the most optimistic with an ABCI of 58.8. The Mobile outlook improved to 58.3 and ABCI Birmingham‐Hoover rose to 57.0. Sentiment in Huntsville is above 50 for the first time in over two years. ABCITM 100
90
80
Second Quarter 2014 Outlook
Index
Change from Q1 2014 ABCI 55.6 4.4 National Economy 52.5 4.7 Alabama Economy 58.4 4.6 Industry Sales 61.6 7.5 Industry Profits 56.5 4.2 Industry Hiring 51.1 1.5 Capital Expenditures 53.7 3.8 Index above 50 indicates positive outlook. Index below 50 indicates negative outlook. Business Environment Expectations Q2 2014 compared to Q1 2014 Outlook for U.S. Economy Turns Positive The national economy index increased 4.7 points to 52.5 on the second quarter 2014 ABCI survey. That’s the highest reading and only the third above 50 from the last eight quarters. While panelists’ opinions about the direction of the U.S. economy are mixed, a net 11.6 percent anticipate stronger growth than in first quarter 2014. With a budget compromise and positive signs of improving job and housing markets, business executives see U.S. economic prospects as much better than a year ago when the index was 40.5. Still, firms in healthcare; trade; and transportation, information, and utilities feel national economic conditions and policies could negatively impact their industries. National and Alabama Economy 70
60
Alabama 56.8
52.9
50.2 48.3 45.4 47.7
50
51.9 51.2
55.6
Much Better
2.8
2.0
Alabama
44.0
Somewhat Better
40
30
36.0
38.4
35.6
Remain the Same
20
13.6
Somewhat Worse
10
Much Worse
0
Q2
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2013 2014
National
22.8
1.2
3.6
Percent Second Quarter 2014, Volume 13, Number 2
Industry Performance Expectations Q2 2014 compared to Q1 2014 Sales Strong Increase
4.4
Moderate Increase
54.0
No Change
26.8
Moderate Decrease
13.2
Strong Decrease
1.6
0
10
20
30
40
50
60
Profits Strong Increase
3.6
Moderate Increase
50
45
40
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2012 2013 2014
Sales and Profits Expectations versus Prior Quarter 65
60
20
30
40
50
60
Index 10
Hiring Plans Strong Increase
2.4
Moderate Increase
23.2
61.6
Sales
56.5
55
50
45
No Change
Sales and Profits Forecasts Best in Two Years Alabama businesses are feeling optimistic about sales prospects for the second quarter of 2014. The index jumped 7.5 points to 61.6, with 58.4 percent expecting sales to be higher than in the first quarter. Profits are also rebounding in most industries—at 56.5 the index is up 4.2 points. Over 79 percent of panelists forecast level or rising profits. Firms in wholesale trade and financial activities have the highest expectations for both sales and profits this quarter. Outlooks are also very positive in construction; manufac‐
turing; wholesale trade; transportation, information, and utilities; and other services. Professional, scientific, and technical services businesses are mildly optimistic about second quarter sales, although profits could decline modestly. While retailers forecast level sales and profits, the outlook among healthcare concerns remains negative. 1.6
0
United
States
35
19.2
Strong Decrease
52.5
Alabama
34.4
Moderate Decrease
58.4
55
41.2
No Change
Profits
56.0
Moderate Decrease
40
13.2
Strong Decrease
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2012 2013 2014
5.2
0
10
20
30
40
50
60
Capital Expenditures Strong Increase
3.6
Moderate Increase
27.6
No Change
52.0
Moderate Decrease
13.6
Strong Decrease
3.2
0
10
20
30
Percent 2
Expectations versus Prior Quarter 60
Index Alabama Economic Growth Seen Accelerating Business executives expect the state’s economy to have a strong second quarter. The Alabama index rose 4.6 points to a robust 58.4, its best reading since the second quarter of 2012 and the fourth consecutive positive outlook. Almost 47 percent of panelists see the state’s economy performing better, while 38.4 percent think growth will be about the same as last quarter. Only around 15 percent forecast a possible downside this quarter. Recent economic data support this optimism, showing growth in both the Alabama labor force and employment. Manufacturing industries such as automotive and aerospace continue to expand, while new projects add diversity to the sector. Despite challenges from federal spending cutbacks, even professional, scientific, and technical service firms have added jobs in recent months. U.S. and Alabama Economy 40
50
60
From the ABCI Panelists Poll (Nov.‐Dec. 2013):
What are the top issues facing your company? Government policies, regulation, uncertainty 45.5% Costs, profitability, business development 35.1% Weak growth in economy, housing, demand 33.8% Healthcare costs, programs, uninsured 32.5% Finding qualified workers, education, training 19.5% Note: Panelists could enter multiple responses. Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama® | ABCITM
68.7
70
65
60
55.6
55
50
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 Stable to Improving Alabama business executives in construction, financial activities, and other services are the most optimistic about second quarter prospects, forecasting moderate to strong improvement on every industry metric. Manufacturers and firms in transportation, information, and utilities have a broadly positive outlook, although hiring will be modest. While wholesalers expect strong gains in sales and profits, hiring could weaken. However, firms in professional services and healthcare remain concerned about most business aspects. ABCI by Industry, Second Quarter 2014 Q2 2014 Change from
Q1 2014 Construction 59.4
0.4
Manufacturing 57.8
2.9
53.7
Transportation/Information/Utilities 57.1
11.3
51.1
Wholesale Trade 55.1
9.0
Retail Trade 46.7
-1.9
48
Finance/Insurance/Real Estate 60.0
5.6
46
Professional/Scientific/Tech Services 49.0
-0.9
Healthcare Services 45.0
2.7
All Other Services 58.5
7.2
Hiring and Capital Expenditures Expectations versus Prior Quarter 56
54
52
Index ABCITM History: Heading in a Positive Direction Index Hiring and Capital Investment Looking Up Job growth could be slightly better statewide in the second quarter of 2014. The hiring component index of the ABCI rose 1.5 points to 51.1, its highest reading of the past two years. Still, businesses are likely to remain cautious about adding jobs this quarter—56.0 percent of respondents expect hiring to be about the same as in the first quarter, while a net 7.2 percent anticipate increasing the pace of hiring. Responses to the second quarter 2014 ABCI survey indicate that most job creation will be at construction, other services, and financial activities firms. Manufacturers and businesses in the transportation, information, and utilities sector are also likely to add to payrolls this quarter. Among the metro areas, Birmingham‐Hoover, Mont‐
gomery, and Mobile expect modest job growth, while Huntsville executives forecast weaker hiring. A 3.8 point increase put the second quarter capital expenditures index back in positive territory at 53.7. That’s a good sign businesses are feeling that economic growth is on a more stable path. The outlook for spending this quarter is the second highest of the past 27 quarters. Fifty‐
two percent of panelists expect investment to be level with last quarter and a net 14.4 percent forecast an increase. While Huntsville panelists expect a modest decline in area capital spending, the Birmingham‐Hoover, Mobile, and Montgomery metros should all see substantial gains. Spending increases could be highest in manufacturing; transportation, information, and utilities; and construction. 50
44
Hiring
Capital Expeditures
42
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2012 2013 2014
Industries in Depth, Second 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 65.6 63.8 62.5 71.2 57.5 66.0 51.9 48.4 65.0 Profits 57.8 56.9 56.3 59.6 50.0 64.2 48.7 42.2 60.0 Hiring 59.4 52.5 52.5 48.1 40.0 54.7 41.0 40.6 58.8 Capital Spending 57.8 61.3 61.3 53.8 45.0 55.2 44.2 42.2 55.0 Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama® | ABCITM
3
ABCI and Component Indexes by Area, Second Quarter 2014 Metro Areas Alabama Birmingham Huntsville Mobile Montgomery National Economy 52.5 51.2 48.8 56.2 57.8 Alabama Economy 58.4 58.5 54.0 63.4 62.5 Industry Sales 61.6 63.8 56.4 63.4 65.6 Industry Profits 56.5 58.8 51.2 58.0 58.3 Industry Hiring 51.1 53.8 45.6 51.8 52.6 Capital Expenditures 53.7 55.8 48.0 57.1 55.7 ABCI 55.6 57.0 50.7 58.3 58.8 Large Metro ABCIs All Positive for Second Quarter 2014 A 3.4 point gain in confidence raised the Montgomery ABCI to 58.8, highest of the four large metros this quarter. Area executives are very optimistic about the Alabama economy and their own sales, although job creation is likely to be modest. Mobile business sentiment rose 2.1 points to 58.3, with robust expectations for the state’s economy and for sales. Profits and capital spending should increase moderately, but job growth could slow from the first quarter pace; the Mobile hiring index fell 2.4 points to 51.8. Birmingham‐Hoover business executives are much more optimistic this quarter—the area ABCI rose 3.8 points to 57.0. Most industries expect strong sales gains; profits should improve; and capital spending could increase moderately. Prospects for job growth in Birmingham‐
Hoover are looking up. Huntsville’s business confidence turned positive for the first time in the last two years. At 50.7, optimism is subdued with modest cutbacks in hiring and capital investment forecast for second quarter 2014. Expectations for sales, profits, and the Alabama economy are positive, but the U.S. economy remains a negative. Alabama Businesses Employing 100+ Most Optimistic Confidence among the state’s large firms jumped 6.2 points to 57.1 on the second quarter ABCI survey. As a whole, this group is the most positive on every industry indicator and the only segment of the business community likely to ramp up hiring this quarter. They expect state and national economic growth to improve moderately. Large companies in manufacturing, construction, and financial activities are the most optimistic with ABCI readings around 60. However, large professional, scientific, and technical service concerns remain pessimistic on all indicators. Alabama’s midsize firms, employing 20 to 99, and small businesses with fewer than 20 employees have very similar outlooks for the second quarter. However, small business confidence is up just 0.9 points to 55.4, while the index for midsize firms climbed 5.9 points to 54.0. Uncertainty concerning the impact of the Affordable Care Act may have been negatively impacting sentiment among this latter size group. With implementation behind them, midsize busi‐
nesses now see the U.S. economy as mildly supportive; their national economy index rose 7.6 points to 51.1. ABCI and Component Indexes by Firm Size, Second Quarter 2014 Number of Employees 0 to 19 20 to 99 100 and over National Economy 51.5 51.1 54.4 Alabama Economy 59.9 56.5 58.5 Industry Sales 61.8 60.5 62.1 Industry Profits 56.9 55.1 57.2 Industry Hiring 49.7 48.6 54.6 Capital Expenditures 52.7 52.2 55.7 ABCI 55.4 54.0 57.1 The Center for Business and Economic Research extends a sincere thank you to the 250 Alabama business executives who completed the second quarter 2014 ABCI survey during the first two weeks of March. This report from the 50th consecutive quarter of the ABCI survey would not be possible without your participation! Be sure to log in June 1‐15 to record your opinions about economic prospects and industry performance looking ahead to the third quarter of 2014. Analysis provided by Carolyn Trent, Socioeconomic Analyst, Center for Business and Economic Research, The University of Alabama. For more details on the Alabama Business Confidence IndexTM, 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, Culverhouse College of Commerce, The University of Alabama® | ABCITM