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U T A H ’ S Q U A R T E R LY E C O N O M I C S U R V E Y O F B U S I N E S S E X E C U T I V E S

2018 - QUARTER 2


Utah’s Economy is the Envy of the Nation This past quarter, I was invited to testify before Congress about Utah’s amazing economy and thriving small business ecosystem. This was a tremendous opportunity to share why Utah’s economy is one of the best in the nation. As a quick reminder, Utah ranks number one in the U.S. for job growth, enjoys consistently low unemployment rates and a strong workforce. Utah receives top marks for both current economic strength and future economic outlook. I’m proud to say that small business is at the heart of this success. The U.S. Small Business Administration reports that Utah is home to over 277,000 small businesses making up 99.3 percent of Utah companies and 57.3 percent of total employees in the state.

Derek B. Miller President and CEO Salt Lake Chamber

In Utah, the government and the business community work collaboratively and intentionally to create a strong business environment and support our growing small business community. In my testimony I described four areas I believe have been fundamental to Utah’s economic success: strong and educated workforce, low taxes and reasonable regulations, small business incentives, and internation trade. This quarter’s CEOutlook shows that in many cases executives are optimistic about our economy. However, there are also clear signs that the collaborative and problem-solving nature that has made us great is needed more than ever. Executives are concerned about rising costs, detrimental actions on trade, an acute need for talented labor and tackling our housing affordability challenges.

All of these issues impact what I call “foundational priorities” of the Chamber. They are issues such as transportation, education and workforce, and quality of life. The needs, strategies and tactics for these foundational priorities may change over time, but these priorities are foundational to the mission of the Chamber. I invite you to study this quarter’s CEOutlook and think about how you can utilize this information to not only improve the success of your business, but the success of our community.

What is the right way to interpret the mix of optimism and concern? The latest CEOutlook confirms the optimism felt by business executives about the Utah economy (arguably the strongest in the nation right now). The responses also highlight concerns about a variety of challenges: • Impact of tariffs on Utah exports • Finding labor, especially skilled labor • Increasing gas prices and the impact on retail trade • Rising costs, especially housing affordability What is the right way to interpret the mix of optimism and concern? Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber

I’m struck by the difference or gap between executives’ views about current economic conditions compared to six months ago v. economic conditions six months from now. Last quarter the gap in the “somewhat better” response was two percentage points between the two questions. Fifty percent felt the economy was somewhat better six months before v. 52 percent felt the economy would be somewhat better six months into the future. In the second quarter, this gap increased to 11 percentage points (60 percent v. 49 percent). I read this to mean that Utah CEOs believe rising interest costs, tight labor, rising housing prices, tariffs, and other issues will weave a more cautionary economic tale by the end of the calendar year. The Utah economy is strong, but we are late in the cycle. I’m excited to see if Utah executives get this right.

CEOutlook: Utah’s Quarterly Economic Survey of Business Executives


SALT LAKE CHAMBER’S CEOUTLOOK CONFIDENCE INDEX AND JOB GROWTH The Salt Lake Chamber’s CEOutlook Confidence Index is based on responses to the four standard questions included in each quarter’s survey (Questions 1-4). The index can range from 0 to 100. A score below 50 indicates executives believe the economy will worsen; a score above 50 indicates a belief among executives that the economy will improve. Over the next year, we will fine tune and evaluate the index to better understand its relationship to economic performance. 4%

90 3.1%

3%

3%

2.5%

60

2%

Year-Over Job Growth

75

45 30

1%

60.63

62.36

60.63

Utah Job growth

62.00

Index

62.84

0%

66.29

15

2017-Q1 66.29 3%

2017-Q2 62.84 3.1%

2017-Q3 62.00 2.5%

2017-Q4 60.63 3%

2018-Q1 62.36 3.1%

2018-Q2 60.63 3%

>50 Optimisim

3%

3.1%

Concern <50

3%

0

Source: Index is produced from the Salt Lake Chamber’s CEOutlook with support from the Kem C. Gardner Policy Institute, including analysis of the Utah Department of Workforce Services’ statewide job growth data.

ABOUT THE SALT LAKE CHAMBER’S CEOUTLOOK The Salt Lake Chamber’s CEOutlook is a statewide economic survey of Utah business executives. Modeled after other national business sentiment surveys, it provides a forward-looking view of the Utah economy. The results of the survey are intended to help business and community leaders make informed decisions about likely future economic conditions. The survey will continue to be evaluated through 2018 to assess its predictive value. QUARTER

CONDUCTED

SAMPLE

Quarter 1

February-March 2018

44

Quarter 2

May-June 2018

35

Quarter 3

August-September 2018

Quarter 4

November-December 2018

2018 - Quarter 2


IMPROVING CONDITIONS: MAJORITY OF EXECUTIVES REPORT UTAH’S ECONOMY HAS CONTINUED TO IMPROVE 1 - How would you describe the current economic conditions in Utah compared to six months ago? 60%

56% 50% 43%

42%

2%

50%

0% 0%

5%

43%

3%

2017-Q3 N=45

5%

0%

2017-Q4 N=40

Significantly Better

Somewhat Better

40%

2%

0%

0%

2018-Q1 N=44 About the Same

0% 0% 2018-Q2 N=35

Somewhat Worse

Significantly Worse

LOOKING AHEAD: EXECUTIVES SEE UTAH’S STRONG ECONOMY CONTINUING AT CURRENT PACE OR IMPROVING IN THE NEXT SIX MONTHS 2 - What is your expectation for economic conditions in Utah six months from now?

52%

51% 45% 45%

41%

38%

7%

10% 4%

0%

Significantly Better

7% 0%

0%

2017-Q3 N=45

0%

2017-Q4 N=40 Somewhat Better

49% 49%

0% 2018-Q1 N=44

About the Same

Somewhat Worse

*Some totals may appear to exceed 100% due to rounding for simplification.

CEOutlook: Utah’s Quarterly Economic Survey of Business Executives

0%

3% 2018-Q2 N=35

Significantly Worse

0%


INDUSTRY OPTIMISM: EXECUTIVES REPORT ECONOMIC CONDITIONS IN THEIR OWN INDUSTRY CONTINUE TO IMPROVE 3 - What is your expectation for your own industry six months from now?

55%

50%

49% 43%

41%

40%

40%

27%

11%

15%

11% 0%

3%

2017-Q3 N=45

0%

0%

2017-Q4 N=40

Significantly Better

Somewhat Better

5%

9% 3%

0%

2018-Q1 N=44 About the Same

0%

2018-Q2 N=35

Somewhat Worse

Significantly Worse

PROFIT OUTLOOK: EXECUTIVES CONTINUE TREND OF DAMPENED EXPECTATIONS FOR PROFIT GROWTH FOR NEXT YEAR 4 - What are your expectations for your firmâ&#x20AC;&#x2122;s profits in the next 12 months?

58% 51% 45% 40%

38%

34% 23%

18%

0% 2017-Q3 N=45 Increase Considerably

17%

14%

9% 2%

31%

11%

7%

3%

0%

0% 2017-Q4 N=40

Increase Moderately

2018-Q1 N=44 Remain the Same

Decrease Moderately

0% 2018-Q2 N=35 Decrease Considerably

*Some totals may appear to exceed 100% due to rounding for simplification.

2018 - Quarter 2


DEMAND KEY DRIVER OF EXECUTIVES THAT ARE EXPECTING PROFIT GROWTH 5 - Which factor do you anticipate will be the primary driver for increasing profits over the next 12 months? INCREASED DEMAND

REDUCTION IN COSTS 8%

54% 42%

4%

43%

13% 73%

INCREASED PRICES

7% OTHER*

21%

17% 33%

21% 26%

17% 7%

13% 2017-Q3 N=24

2017-Q4 N=24

2018-Q1 N=23

2018-Q2 N=15

*Other - Tax reform, Increased interest rates and lower corporate tax rates

VARIOUS IMPACTS LEADING REASONS FOR EXPECTED PROFIT DECLINES 6 - Which factor do you anticipate will be the primary driver in decreasing profits over the next 12 months?

DECREASED DEMAND

INCREASE IN COSTS

25%

0% 29%

43% 50%

17%

0%

33%

DECREASED PRICES

OTHER*

0%

75% 14%

14% 0%

33%

0%

67% 2017-Q3 N=4

2017-Q4 N=7

2018-Q1 N=6

2018-Q2 N=6

*Other - Increased costs and labor shortages. Uncertainty regarding federal insurance regulations for individual market. Significant investment spending which will dramatically increase future profits. Loss of a major client. CEOutlook: Utahâ&#x20AC;&#x2122;s Quarterly Economic Survey of Business Executives


MAJORITY OF EXECUTIVES STILL EXPECT TO EXPAND PAYROLLS

54%

3%

9%

9%

10%

33%

34%

43%

45%

45%

57%

58%

7 - Do you expect the overall headcount at your company to increase, decrease or stay the same over the next 12 months?

2017-Q3 N=45

2017-Q4 N=40 Increase

2018-Q1 N=44 Stay the Same

2018-Q2 N=35

Decrease

EXECUTIVES REPORT TRADE AND LABOR SHORTAGE ISSUES AS LEADING CONCERNS FOR UTAH’S ECONOMY 8 - What emerging trends, risks and other factors do you think may have a positive or negative impact on Utah’s economy in the next 12 months? Below are highlighted, anonymized quotes from executives:

“We are concerned about rising gas prices which have an almost immediate negative impact on retail spending. We are also concerned about the potential for tariffs which could negatively impact prices of consumer electronics for Apple during the holiday season.”

“Uncertainty in construction costs due to politics around tariffs on steel and other materials. Increased labor costs due to shortage of skilled labor. Rising interest rates. All these are negative.”

“Housing prices are coming up in recruiting conversations, housing affordability is becoming a larger issue.”

“Trade and tariff wars. This is very concerning for our customers internationally, and will have a major impact on Utah.”

“Reaching max employment, so wages will go up. Also, general pricing increases in transportation will drive inflation.”

“Northwest Quadrant development allows us to be a major crossroads of the west player.”

“Finding skilled labor is a major concern.”

“Continued labor shortage across most industries.”

2018 - Quarter 2


EXECUTIVES CONCERNED ABOUT IMPACTS ON TALENT RECRUITMENT AND RETENTION FROM RISING HOUSING PRICES 9 - Utah’s housing prices since 1991 have increased at a faster rate than housing in San Francisco, San Jose and Seattle. How will housing affordability affect your business and the Utah economy over the next five years? Below are highlighted, anonymized quotes from executives: “It’s the most fundamental challenge we have in our business.”

“Housing is a major challenge that needs to be addressed if we are to maintain the emerging talent that are needed to fill the jobs being created in the state. As housing costs approach those in larger markets, we will lose out as salaries do not match those markets.”

“Housing affordability is critical to family discretionary spending budgets. The entertainment business is very sensitive to discretionary spending. If we do not see comparable wage growth in-line with housing price increases, it will negatively impact our overall business.”

“We are in the middle of this discussion working as a company to raise awareness about what is happening and push for solutions both internally and externally. This issue is most troubling for first-time homebuyers, Utah’s future workforce, who will face a significant task at achieving homeownership.”

“It is already a serious problem. In the past, we have recruited talent from out of state based on the ability to provide competitive compensation when lower cost of living/housing was considered. Increases in employee benefits and housing costs have reduced or in some cases eliminated that competitive edge as our ability to increase fees is limited by local market customs and expectations.”

“I am concerned that we will see families not choosing to stay in Utah or move here in the first place. As a growing employer it is already extremely difficult to find good talent.”

EXECUTIVE REPORT SIGNIFICANT IMPACTS FROM TARIFFS, HOWEVER SOME ARE SUPPORTIVE 10 - What impacts, if any, have recent actions on tariffs by the Trump Administration had on your company and/or industry? Below are highlighted, anonymized quotes from executives:

“They’ve been disastrous. Our industry has been impacted by the Canadian lumber tariffs for 18 months and that has increased the cost of housing by $7,000 per home on average. The steel tariffs are going to impact literally every item in homebuilding. Appliances, ceramic tile because of the metal laths for example. Even the nails used by framers will increase in cost. This is a huge issue for housing affordability.”

“Our Mexico business is down by 70% over the same time last year.”

“Tariffs are making retailers nervous across the board. If prices rise and impact retail consumers, spending will drop. It will be very negative if this occurs in November and December.”

“There is a lot of misinformation being discussed about the steel tariffs just imposed…. The reality is that the U.S. has been under economic attack for 30+ years. The rest of the world has used predatory policies to create a false sense of a free market… The point is if we allow unfair practices to continue unabated, then then there will probably be unforeseen consequences much worse than the exaggerated hype of the impact of these tariffs.”

“We hate the uncertainty, the higher prices (even when the tariffs haven’t actually been imposed, the suppliers take advantage of them to raise prices). The further impact is the heightened impression that the US is becoming more protectionist, and that hurts our international trade relations, sales and future.”

“China is a bad player, and someone needs to stand up to them. There will be likely be short term issues, but it is necessary.”

CEOutlook: Utah’s Quarterly Economic Survey of Business Executives


KEY ECONOMIC INDICATORS FOR BUSINESS LEADERS QUARTER 2 AVERAGES UTAH’S EMPLOYMENT SITUATION The Department of Workforce Services reported, as of May 18, 2018, Utah’s nonfarm payroll employment for April 2018 grew by an estimated 3.4 percent, adding 49,400 jobs to the economy since April 2017. Utah’s current employment level registers 1,510,800. Utah’s private sector employment grew by 3.7 percent year-over with the addition of 45,300 positions. April’s seasonally adjusted unemployment rate remained unchanged from the prior month at 3.1 percent. Approximately 48,600 Utahns were unemployed during the month and actively seeking work. The national unemployment rate decreased two-tenths of a percentage point to 3.9 percent.

BUSINESS LEADER SENTIMENT The Salt Lake Chamber’s CEOutlook Confidence Index decreased from 62.36 to 60.63, as executives reported that Utah’s already strong current economic conditions had improved but optimism for continued economic improvement has dampened. The Conference Board Measure of CEO Confidence™, which rebounded in the fourth quarter of 2017, made further gains in the first quarter of 2018. The Measure now reads 65, up from 63 in the fourth quarter of 2017 (a reading of more than 50 points reflects more positive than negative responses). Small business sentiment rose for the fifth consecutive quarter as the MetLife & U.S. Chamber of Commerce Small Business Index climbed to 68.7 from 66.3. The rise comes amid the strongest local economic outlook in the history of the survey, a firmer hiring environment, and a stronger backdrop for investing that left nearly two out of every three small business owners feeling optimistic about their company and the small business environment in the United States. The Business Roundtable second quarter CEO Economic Outlook Survey — a composite of CEO expectations for sales and plans for capital spending and hiring over the next six months — fell to 111.1 in the second quarter of 2018, declining 7.5 points from 118.6 in the first quarter.

CONSUMER PRICES The Zions Bank Wasatch Front Consumer Price Index increased 1.5 percent from April to May on a non-seasonally adjusted basis. Yearover-year, the Wasatch Front Consumer Price Index has grown 5.0 percent, the largest annual increase since Zions Bank began measuring the Wasatch Front Consumer Price Index in 2010. The National Consumer Price index has increased 2.8 percent since May of last year. Rising prices within the housing and transportation sectors continue to drive the majority of the increase in overall cost of living along the Wasatch Front.

CONSUMER ATTITUDE After reaching an all-time high in March, the Zions Bank Utah Consumer Attitude Index lost 3.4 points to register at 110.7 in May — the lowest level since July 2016. It marked the second consecutive month of decline. Comparatively, the national Consumer Confidence Index gained 2.4 points to register at 128.0 for the month, which was 10.1 points higher than the same time last year.

2018 - Quarter 2


The Salt Lake Chamber’s annual Washington, D.C. trip is a high-level networking, educational and policy development opportunity. This trip brings together Utah’s business leaders with members of our federal delegation and other policy and business groups headquartered in the nation’s capital. The three-night, three-day Washington, D.C. Trip includes an unmatched itinerary with special tracks designed to fit a variety of interests on Sept. 25-28, 2018.

Questions? Contact Heidi Walker: hwalker@slchamber.com or 801.328.5081 or visit www.slchamber.com/dctrip

ABOUT THE SALT LAKE CHAMBER

ABOUT THE KEM C. GARDNER POLICY INSTITUTE

The Salt Lake Chamber is Utah’s largest and longest-standing business association. A statewide chamber of commerce with members in all 29 Utah counties, the Chamber represents the broad interests of the state’s 63,000-plus employers, which employ more than 1.4 million Utahns. This includes thousands of members and their employees.

The Kem C. Gardner Policy Institute at the University of Utah develops and shares economic, demographic and public policy data and research that help individuals and the community make informed decisions. Housed in the David Eccles School of Business, the Institute seeks to be a vital gathering place and center for independent economic, demographic and public policy thought leadership that helps the Utah economy to prosper. The Institute is a strategic partner with the Salt Lake Chamber in serving Utah.

CEOutlook: Utah’s Quarterly Economic Survey of Business Executives


RESPONDENT INDUSTRY MAKE UP SECTOR

NUMBER RESPONDING Q3

TOTAL POSSIBLE

3-YEAR CONTRIBUTION TO GDP

2018

Q1

Q2

Q4

Finance, Insurance Real Estate, Rental & Leasing

11

10

15

25%

Manufacturing

5

3

8

14%

Professional & Business Services

5

5

7

12%

Retail Trade

4

2

5

8%

Education, Health Care & Social Services

2

2

5

8%

Construction

4

4

4

6%

Wholesale Trade

3

1

3

6%

Information

2

2

3

5%

Mining

2

2

2

4%

Arts, Entertainment, Recreation & Accommodation

2

2

2

4%

Transportation & Warehousing

1

1

2

4%

Other

1

0

2

3%

Utilities

1

1

1

>1%

Agriculture, Forestry, Fishing & Hunting

0

0

0

<1%

*Sample attempts to proportionally represent Utah’s business sectors. Sectors are determined by the Utah Department of Workforce Services FirmFinder.

METHODOLOGY The Salt Lake Chamber partners with the Kem C. Gardner Policy Institute at the University of Utah to design, tabulate and assist in analyzing the survey. Sixty business executives from Utah’s fourteen major industries are asked to respond to 6-8 questions, depending on their responses, about their company and Utah’s economic performance. Respondents are selected by each industry’s contribution to the Utah economy. Panelists come from a range of firm sizes and locations within Utah.

FOR MORE INFORMATION Abby Osborne Vice President of Public Policy and Government Relations Salt Lake Chamber 801-328-5071 aosborne@slchamber.com

Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber 801-585-5618 natalie.gochnour@eccles.utah.edu

Dianne Meppen Director of Survey Research Kem C. Gardner Policy Institute 801-585-5618 dianne.meppen@utah.edu

2018 - Quarter 2


Profile for Salt Lake Chamber

CEOutlook 2018 - Quarter 2  

The Salt Lake Chamber’s CEOutlook is a new statewide economic survey of Utah’s foremost business executives. As an authoritative business su...

CEOutlook 2018 - Quarter 2  

The Salt Lake Chamber’s CEOutlook is a new statewide economic survey of Utah’s foremost business executives. As an authoritative business su...