first business bank economic survey...economic survey was conducted by dr. moses altsech, who...

FIRST BUSINESS BANK

ECONOMIC SURVEY 2019 RESULTS

2

TABLE OF CONTENTS METHODOLOGY ................................................................................................................................................................ 2

RESULTS ACROSS REGIONS ............................................................................................................................................... 3

DEMOGRAPHICS ........................................................................................................................................................... 4

RESULTS ........................................................................................................................................................................ 5

GREATER MADISON AREA RESULTS ................................................................................................................................ 11

DEMOGRAPHICS ......................................................................................................................................................... 12

RESULTS ...................................................................................................................................................................... 12

SOUTHEAST WISCONSIN RESULTS .................................................................................................................................. 20

DEMOGRAPHICS ......................................................................................................................................................... 21

RESULTS ...................................................................................................................................................................... 22

NORTHEAST WISCONSIN RESULTS.................................................................................................................................. 29

DEMOGRAPHICS ......................................................................................................................................................... 30

RESULTS ...................................................................................................................................................................... 31

KANSAS CITY METRO RESULTS ........................................................................................................................................ 38

DEMOGRAPHICS ......................................................................................................................................................... 39

RESULTS ...................................................................................................................................................................... 40

METHODOLOGY The 2019 First Business Bank Economic Survey was completed by over 330 respondents in four key business markets: the Greater Madison Area, Southeast Wisconsin, Northeast Wisconsin, and Kansas City Metro. The survey was distributed by both mail and electronically and was completed over a period of six weeks (mid-September to early November 2019) by individuals known to be decision makers (typically owners, CEOs, CFOs, and other senior executives). Respondents self-reported their industry. Qualtrics was used to collect and analyze the data. The 2019 Economic Survey was conducted by Dr. Moses Altsech, who teaches in the top 10-ranked Marketing Department at UW-Madison’s Wisconsin School of Business, and is the President of Moses Altsech Consulting, LLC. The survey is conducted and reported annually as a value-added service to the business communities First Business Bank serves.

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RESULTS ACROSS REGIONS In what continued to be a strong economy in 2019, 18% of companies surveyed reported lower sales revenue in 2019 over the previous year, while 57% reported increased sales revenue. The outlook seems to be very positive for 2020, with just 7% expecting a decrease in sales revenue and three quarters (74%) projecting higher sales in 2020. Twenty-one percent of companies reported lower profits in 2019 compared to 2018, but 52% saw an increase in profitability. Expectations for 2020 remain optimistic: 7% expect lower profits next year, as opposed to 64% that expect increased profits. When it comes to the workforce, 14% of respondents saw a decrease in the number of employees and 3% saw lower wages; however, 41% increased the size of their workforce and an impressive 81% increased wages. As for 2020, just 4% expect a decrease in the number of employees and 1% project a decrease in wages, in contrast to 48% who project having more employees and 74% who project higher wages ahead.

When asked about their overall business performance, 29% report beating their expectations, 43% met expectations, and 28% did worse than expected in 2019. They largely attributed worse-than-expected performance to a skills shortage, followed closely by higher operating costs, and by a domestic sales shortfall as a more distant third. Better-than-expected performance was attributed to investments in technology, followed very closely by increased sales efforts and improved internal efficiencies. In 2019, most companies focused on diversifying their client base to capitalize on a series of good years. That remains the top priority in 2020, followed by creating a process for generating innovative business ideas and creating/expanding a leadership training curriculum tailored to their company, tied as distant seconds. In 2020, an impressive 68% of companies expect better overall business performance, while fewer than 5% expect to do worse. In that regard, at the tail end of several very good years, there’s still optimism for the year ahead.

The fact that optimism for 2020 is strong but more cautious than it was ahead of 2019 should not come as a surprise. This will be a presidential election year, which often causes businesses (and, in fact, consumers) to take a “wait and see” stance — though election-year caution historically has been short-lived regardless of the election’s outcome. The International Monetary Fund has cut its U.S. economic forecast due to the trade war with China, which has hurt the agriculture sector, manufacturing, as well as other industries that have seen cost increases for imported goods. Although Madison is typically less affected, the impact has been felt heavily in Wisconsin, according to both business forecasting publisher Kiplinger (10/16/2019) and business network Fox Business (10/6/2019). However, the Metropolitan Milwaukee Association of Commerce suggests that there’s likely to be a slowdown rather than an actual economic decline, and that the manufacturing sector is more optimistic than other industries for 2020 (10/11/2019). The hopes of a resolution to the trade war have eased fears of an imminent recession in 2020, and such a resolution may well prolong the period of economic boom and low unemployment further. So far, consumer spending has been strong, which has made a big positive difference. Therefore, the cautious optimism that respondents to the First Business Bank Economic Survey report is largely supported by other national and regional economic assessments.

RESULTS ACROSS REGIONS

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DEMOGRAPHICS Company Location/Headquarters

n=337

Number of Employees

n=339

Primary Business Type

n=335

Southeast Wisconsin

Kansas City Metro

Greater Madison Area

Northeast Wisconsin


5

RESULTS 2018 vs 2019 Changes Compared to last year, please indicate what changed in your organization in this year.

n=335

2020 Forecasts Compared to this year, please indicate what changes you forecast in your organization for next year.

n=331


6

“Unused” Capacity We would like to understand the issues your business is facing regarding "unused" capacity.

n=326

2019 Performance vs Expectations We would like to know whether your actual business performance this year lived up to your expectations from the previous year. How was your overall business performance this year?

n=337

Greater than 90%, 11%

70% to 90%, 68%

Less than 70%, 21%

Operating Capacity Utilization


7

Top Three Reasons for 2019 Being Below Expectations (if applicable) If your business performed below expectations this year, to what would you attribute this lower performance? (please choose your TOP THREE):

n=245


8

Top Three Reasons for 2019’s Success (if applicable) Please select the THREE OPTIONS that contributed most to improved company performance this year:

n=464


9

2019 Strategies This year, did you already implement any of the following strategies? (please choose your TOP THREE):

n=352


10

2020 Strategies Next year, which of the following strategies do you plan to implement? (please choose your TOP THREE):

n=690

Expectations for 2020 vs 2019 Do you think your business will perform better or worse overall next year compared to this year?

n=337


11

GREATER MADISON AREA RESULTS In 2019, 15% of companies in Greater Madison saw a decrease in sales revenue (up four percentage points from the previous year, which was very close to a historic low), and 58% saw a sales revenue increase — down from the previous year’s historic high 75%. In 2020, 7% project a sales revenue decrease (unchanged from the sales decrease projections for 2019), and 73% project higher sales revenue (down from the previous year’s 78% projection). With respect to profits, 20% saw a decrease in profitability; a single percentage point lower than the previous year, while 51% saw increased profits; just two points below 2018 levels. Although 12% projected a decrease in profits for 2019, only 7% project a profitability decline for 2020, and although 55% projected a profitability increase for 2019, 62% project an increase in profits for 2020. At the same time, 15% saw a decrease in their number of employees, up from 2018’s historic low 6%, and 44% noted an increase in their number of employees (down from 2018’s 62% historic high.) One percent — a new historic low — project a decrease in their number of employees in 2020 (6% had projected a decrease for 2019), and 50% project further increases in their number of employees, down eight points from the previous year’s historic high projection. Just 1% decreased wages, matching the historic low observed in 2015 (and down from 2% in 2018), and 88% increased wages; an increase of six points over last year’s (now previous) historic high. Tying the historic low projection for 2017, 1% of companies project a decrease in wages for 2020, and 81% project a 2020 wage increase — up from 77% the previous year.

In terms of overall business performance, 29% report having done better than expected (down from 39% the previous year), 44% met expectations (38% in 2018), and 27% did worse than expected (23% the previous year). Performance that fell short of expectations was primarily attributed to a skills shortage, as it had the previous year. Higher operating costs were a close second (up from third place the previous year), followed by a domestic sales shortfall. Better-than-expected performance was primarily attributed to investments in technology, followed by increased sales efforts (the previous year’s top reason), and improved internal efficiencies. The top action taken by companies in 2019 was to diversify their client base, followed by efforts to further integrate millennials in their company culture and creating or expanding a leadership training curriculum tailored to their company. Still, the percentage of companies that previously planned to undertake these actions was much higher than the percentage of companies that report following through. In 2020, client base diversification is still a top priority, followed by creating or expanding a company-tailored leadership training curriculum and creating a process for generating innovative business ideas. Overall business performance expectations for 2020 are positive: 67% expect to do better (down from 74% the previous year), but just 3% expect to do worse (down from 7% the previous year). Most (30%) expect to do just as well as they did in 2019, which was, by all accounts, a good year.

GREATER MADISON AREA RESULTS

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DEMOGRAPHICS Number of Employees

n=124


n=121


13


n=124

0%

20%

40%

60%

80%

2015 2016 2017 2018 2019

Sales revenue - Actual

Decrease Unchanged Increase

0%10%20%30%40%50%60%

2015 2016 2017 2018 2019

Profitability - Actual


0%

20%

40%

60%

80%

2015 2016 2017 2018 2019

Number of employees - Actual


0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019

Change In Wages - Actual



14


n=124

0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020

Sales revenue - Projected


0%10%20%30%40%50%60%70%

2016 2017 2018 2019 2020

Profitability - Projected


0%

20%

40%

60%

80%

2016 2017 2018 2019 2020

Number of employees - Projected


0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020

Wages - Projected



15

"Unused" Capacity We would like to understand the issues your business is facing regarding "unused" capacity.

n=122

2019 Performance vs. Expectations We would like to know whether your actual business performance this year lived up to your expectations from the previous year. How was your overall business performance this year?

n=124


70% to 90%, 71%

Less than 70%, 16%



16


n=87


17


n=187


18


n=137


19


n=256


n=123


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SOUTHEAST WISCONSIN RESULTS In Southeast Wisconsin, 21% of companies saw a decrease in sales revenue, sharply higher from the previous year’s historic low 6%, and 59% saw higher sales; also down from the 81% historic high observed in 2018. However, the projections for 2020, despite not being as optimistic as those for 2019, are still very positive. Eight percent project a decrease in sales revenue (up from 2018’s 1% historic low), and 73% project an increase in sales — down from 85%, but still an impressive three quarters of respondents. Seventeen percent saw a decline in profitability (just one percentage point above the previous year’s historic low), and 54% saw increased profits (down from a historic high 63% in 2018). Looking ahead, 9% project lower profits for 2020, but 64% project higher profits. In 2019, 11% of companies reported a decrease in their number of employees and 2% a decrease in wages; 44% reported an increase in their number of employees and 77% saw an increase in wages. For 2020, 5% project a decrease in the number of employees and 2% a wage decrease, while 46% project an increase in employee numbers and 72% expect higher wages.

Thirty-one percent of respondents reported better-than-expected overall business performance in 2019 (down from 40% the previous year), but another 31% said they fell short of expectations (up from 23% the previous year). A skills shortage is the top reason for performing below expectations, followed by higher operating costs and a domestic sales shortfall; the same factors mentioned in 2018 but in reverse order. Increased sales efforts were primarily credited for performing above expectations in 2019, as was the case the previous year. Improved internal efficiencies and investments in new talent are the second and third most important reasons for better-than-expected performance. In 2019, most companies report they took steps to diversify their client base (though far fewer than had planned to do so the previous year). Others created a process for generating innovative business ideas and made efforts to further integrate millennials in their company culture. Client base diversification remains a priority as companies look ahead to 2020, followed by brand assessment research and creating a process for generating innovative business ideas. As companies look to the year ahead, 63% expect better overall business performance and just 6% expect to do worse. Even though optimism is below the previous year’s record-breaking levels, it still remains strong in Southeast Wisconsin.

SOUTHEAST WISCONSIN RESULTS

21


n=99


n=99


22


n=99

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019



0%

20%

40%

60%

80%

2015 2016 2017 2018 2019



0%

20%

40%

60%

80%

2015 2016 2017 2018 2019



0%20%40%60%80%

100%

2015 2016 2017 2018 2019

Wages - Actual



23


n=96

0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020

Wages - Projected



24


n=94

2019 vs. Expectations We would like to know whether your actual business performance this year lived up to your expectations from the previous year. How was your overall business performance this year?

n=97


70% to 90%, 66%

Less than 70%, 28%



25


n=80


26


n=136


27


n=99


28


n=213


n=98


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NORTHEAST WISCONSIN RESULTS

In Northeast Wisconsin, 16% of respondents reported decreased sales revenue, up four points from the previous year’s historic low, while 56% reported an increase. Just 3% expect a decrease in 2020, while 79% expect higher sales in the coming year. Twenty-five percent noted a profit decrease in 2019 (unchanged from the year before and just 2% above the historic low), while 49% saw higher profits. At the same time, a new historic low 1% project lower profits for 2020, while 67% expect an increase in profitability. Although 18% decreased their number of employees and 7% saw lower wages, 33% reported an increase in employee numbers and a new historic high 83% reported a wage increase. Just 5% project a decrease in employee numbers for 2020 and 1% project lower wages, but 49% expect to increase their number of employees and 74% project a wage increase (nine points above the previous year’s projection).

Twenty-nine percent of respondents saw better-than-expected overall business performance in 2019 (compared to 35% the previous year), but 25% saw performance below expectations (a seven-point decrease from last year’s 32%). Falling short of expectations was mostly attributed to higher operating costs, followed by a skills shortage and a domestic sales shortfall, while exceeding expectations was attributed to investments in technology, increased prices, and improved internal efficiencies. Most companies worked on diversifying their client base in 2020 (still not nearly as many as had planned to do so), and that still remains the focus for 2020, with creating or expanding a company-tailored leadership training curriculum coming as a distant second. Optimism for overall business performance remains very strong as companies in Northeast Wisconsin look ahead to 2020. Seventy percent of respondents expect better overall performance (down from 78% the previous year), and just 3% expect to do worse (down three points from last year’s projections).


30


n=77


n=77


31


n=77

0%20%40%60%80%

100%

2015 2016 2017 2018 2019



0%

20%

40%

60%

2015 2016 2017 2018 2019



0%

20%

40%

60%

80%

2015 2016 2017 2018 2019



0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019

Wages - Actual



32


n=76

0%20%40%60%80%

100%120%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

2016 2017 2018 2019 2020



0%

20%

40%

60%

80%

100%

2016 2017 2018 2019 2020

Change In Wages - Projected



33


n=73


n=77


70% to 90%, 64%

Less than 70%, 19%



34


n=55


35


n=102


36


n=80


37


n=14


n=77


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KANSAS CITY METRO RESULTS In the Kansas City Metro, 27% of respondents saw lower sales revenue in 2019 (up from 20% the previous year), and 54% saw higher sales (down four points from 2018). Fourteen percent project lower sales for 2020 (up from 6% the prior year), while 70% expect a sales increase. Twenty-four percent saw a decrease in profits compared to 19% in 2018, but 54% saw an increase; six percentage points higher than the previous year. For 2020, 14% expect lower profits and 65% see an increase ahead. Just 8% reported a decrease in their number of employees (down seven percentage points from 2018) but 43% reported an increase (up four points from last year). Three percent reported a decrease in wages (down from 6% in 2018), and 65% reported an increase (up from 58%). None project a wage decrease in 2020, and 57% expect wages to go up in the year ahead.

In terms of overall business performance, 30% performed better than expected (it was just 14% the previous year), and 30% did worse (down from 42% in 2018). Those who performed worse than expected attribute that largely to higher operating costs, followed closely by a skills shortage, while better-than-expected performance is mostly attributed to improved internal efficiencies with increased sales efforts a close second. By far the top effort companies undertook relates to diversifying their client base, followed by brand assessment and creating a process to generate innovative ideas. In fact, creating a process for generating innovative business ideas slightly edges client base diversification as companies look ahead to 2020. In the year ahead, 79% expect to have better overall business performance, while 8% expect to do worse.

The results for this region are not out of sync with the fact that, after lagging national growth levels since the end of the recession, Kansas City Metro’s economy is starting to pick up thanks to a variety of projects, including a new $1.5 billion terminal at the Kansas City airport and downtown development efforts. As the Kansas City Star reported (11/12/2019), it will be important for Kansas City to fight the “brain drain,” continue attracting talent from elsewhere, and reduce disparities to boost employment in the years ahead. For the time being, the outlook for consumers is good, and if the current trade disputes with China are resolved, both Kansas City consumers and businesses will benefit.

KANSAS CITY METRO RESULTS

39


n=37


n=36


40


n=37

0%

20%

40%

60%

80%

2018 2019



0%

20%

40%

60%

2018 2019



0%

20%

40%

60%

2018 2019



0%

20%

40%

60%

80%

2018 2019

Wages - Actual



41


n=37

0%20%40%60%80%

100%

2019 2020



0%

20%

40%

60%

80%

2019 2020



0%

20%

40%

60%

80%

2019 2020



0%

20%

40%

60%

80%

2019 2020

Wages - Projected



42


n=37


n=37

Greater than 90%,

8%

70% to 90%, 68%

Less than 70%, 24%



43


n=21


44


n=39


45


n=35


46


n=70


n=37


first business bank economic survey...economic survey was conducted by dr. moses altsech, who...

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