U TA H ’ S QUAR TER LY EC ONO M IC S U RVEY OF BU S IN ES S EXECU T I V ES 2019 - QU ART ER 2
Economic Optimism Still Reigns Supreme It was exciting to see increased optimism in the CEOutlook second quarter of 2019. Utah CEOs not only feel better about current conditions compared to six months ago, but they are also more optimistic about the coming six months. That’s a great sign for the Utah economy. That said, Utah business leaders continue to be worried about a handful of issues from trade disputes, tariffs and managing growth to labor shortages and housing affordability. Underlying these concerns, however, is a hidden optimism about decreasing regulatory risks, Utah’s attractive business climate and strong consumer growth.
Derek B. Miller President and CEO Salt Lake Chamber
When asked if elected officials and business leaders should take action to address Utah’s labor shortage, the response was mixed: 54 percent favored action and 46 percent preferred no action. For those respondents that indicated it is necessary to address this issue, there were two common themes for action: to focus on immigration policies and the need for more postsecondary training. Utah is fortunate to have an engaged business community that not only pays close attention to the numbers but is actively engaged to securing a brighter future.
Did the Stance of the Federal Reserve Impact Survey Results? After four consecutive quarters of declining business sentiment, Utah CEOs turned decidedly positive in the second quarter of 2019. Each of the four components of the CEOutlook Index exceeded first quarter results. Much can be read into these results, but among the most important are the actions of the Federal Reserve. In their public statements in January, March and May 2019, the FED spoke of being “patient” in determining future adjustments in interest rates. By June 2019, the FED became more accommodating. They referenced increasing uncertainty and the need to “closely monitor” the economic outlook. Their public statement made clear they would act as appropriate to “sustain the expansion.” A broad consensus began to emerge: the Federal Open Market Committee will lower rates in 2019 if the current expansion continues. Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber
It’s hard to determine if the public statements by the FED were enough to improve the economic outlook in the minds of Utah CEOs. Survey respondents continue to express concerns about Utah’s tight labor market, potential trade war and housing affordability. However, if Utah CEO’s are right, Utah’s economy has, with the help of the FED, more room to run.
SALT LAKE CHAMBER’S CEOUTLOOK CONFIDENCE INDEX AND JOB GROWTH The Salt Lake Chamber’s CEOutlook Confidence Index increased from 53.2 in 2019-Q1 to 60.1 for 2019-Q2, as executives report economic conditions should hold steady or improve. 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%
Year-Over Job Growth
60 2%
45
30 1%
62.0
60.6
62.4
62.3
60.9
55.5
53.2
60.1
Index Utah Job growth
62.8
0%
66.3
15
17-Q1
17-Q2
17-Q3
17-Q4
18-Q1
18-Q2
18-Q3
18-Q4
19-Q1
19-Q2
66.3 3.0%
62.8 3.1%
62.0 2.5%
60.6 3.0%
62.4 3.2%
62.3 3.1%
60.9 3.1%
55.5 3.3%
53.2 3.2%
60.1 3.0%
0
19-Q3
Concern <50
75 3%
>50 Optimisim
90
19-Q4
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 2019 to assess its predictive value.
2019 - Quarter 2
QUARTER
CONDUCTED
SAMPLE
Quarter 1
February-March 2019
40
Quarter 2
May-June 2019
40
Quarter 3 Quarter 4
August-September 2019 November-December 2019
— —
1
IMPROVING CONDITIONS: MAJORITY OF EXECUTIVES BELIEVE UTAH’S ECONOMY HAS HELD STEADY OR IMPROVED Q1- How would you describe the current economic conditions in Utah compared to six months ago?
CURRENT ECONOMIC CONDITION INDEX 70
67.0
65.9
65.0
64.4
64.2
65.0 61.7
60
58.8
55.6 50.0
50
50%
40
35%
30 20 10%
10
5% 0%
0 2017 Q1
2017 Q2
2017 Q3
2017 Q4
Significantly Better
2018 Q1
2018 Q2
2018 Q3
Somewhat Better
2018 Q4
2019 Q1
2019 Q2
About the Same
2019-Q2 N=40
Somewhat Worse
Significantly Worse
LOOKING AHEAD: EXECUTIVES ANTICIPATE ECONOMIC CONDITIONS WILL REMAIN THE SAME OR IMPROVE IN THE NEXT SIX MONTHS Q2- What is your expectation for economic conditions in Utah six months from now?
CURRENT ECONOMIC EXPECTATION INDEX 70
66.1 59.2
60
61.7
58.8
61.4
61.4 56.3
55.5
53%
50.0
50
45.6
40 30
25%
20
15% 8%
10
0%
0 2017 Q1
2017 Q2
2017 Q3
2017 Q4
Significantly Better
2018 Q1
2018 Q2
2018 Q3
Somewhat Better
2018 Q4
2019 Q1
2019 Q2
About the Same
2019-Q2 N=40 Somewhat Worse
Significantly Worse
*Some totals may appear to exceed 100% due to rounding for simplification.
2
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
INDUSTRY OPTIMISM: MAJORITY OF EXECUTIVES EXPECT STABLE ECONOMIC CONDITIONS IN THEIR RESPECTIVE INDUSTRIES Q3- What is your expectation for your own industry six months from now?
INDUSTRY EXPECTATION INDEX 70
67.9
62.5 59.9
60
59.7
63.6
58.1
59.4
57.8 53.1
53.1
50
45%
40
35%
30 20 13% 8%
10
0%
0 2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
Significantly Better
2018 Q2
2018 Q3
Somewhat Better
2018 Q4
2019 Q1
2019-Q2 N=40
2019 Q2
About the Same
Somewhat Worse
Significantly Worse
POSITIVE OUTLOOK ON PROFITS: EXECUTIVES ANTICIPATE PROFIT GROWTH IN THE YEAR AHEAD Q4- What are your expectations for your firmâ&#x20AC;&#x2122;s profits in the next 12 months?
EXPECTATION OF PROFIT INDEX 70
68.6
66.5
64.3
61.7
60
61.3
61.4
63.3
59.3
64.1
66.0
51%
50 40
31%
30 20 10%
10
8% 0%
0 2017 Q1
2017 Q2
2017 Q3
Increase Considerably
2017 Q4
2018 Q1
2018 Q2
2018 Q3
Increase Moderately
2018 Q4
2019 Q1
Remain the Same
2019 Q2
2019-Q2 N=39 Decrease Moderately
Decrease Considerably
*Some totals may appear to exceed 100% due to rounding for simplification.
2019 - Quarter 2
3
OF THE RESPONDENTS ANTICIPATING INCREASING PROFITS, AN INCREASE IN DEMAND WAS CITED AS THE PRIMARY DRIVER Q5- Which factor do you anticipate will be the primary driver in increasing profits over the next 12 months? 5% 13% 21% 4%
7% 26%
17%
14% 34%
7% 14%
22%
13% 17% 33%
17%
29% 4% 4%
13%
10%
42%
43%
73%
67%
38%
48%
63%
2017-Q4 N=24
2018-Q1 N=23
2018-Q2 N=15
2018-Q3 N=21
2018-Q4 N=29
2019-Q1 N=23
2019-Q2 N=24
Increased Demand
Increased Prices
Reduction in Costs
Other
NO CONSENSUS COULD BE REACHED AS TO THE PRIMARY DRIVER BEHIND RESPONDENTS ANTICIPATING DECREASING PROFITS Q6- Which factor do you anticipate will be the primary driver in decreasing profits over the next 12 months?
14% 25% 33%
33% 40% 50%
43%
25% 13%
20%
67%
14%
33%
50%
29%
17%
33%
50%
38%
40%
33%
2017-Q4 N=7
2018-Q1 N=6
2018-Q2 N=6
2018-Q3 N=2
2018-Q4 N=8
2019-Q1 N=5
2019-Q2 N=3
Increase in Costs
4
Decrease Prices
Decreased Demand
Other
CEOutlook: Utahâ&#x20AC;&#x2122;s Quarterly Economic Survey of Business Executives
LOOKING AHEAD: EXECUTIVES OPTIMISTIC HEADCOUNTS TO INCREASE IN THE NEXT YEAR Q7- Do you expect the overall headcount at your company to increase, decrease or stay the same over the next 12 months? 3%
9%
10%
34%
6%
5%
8%
3%
36% 43%
41% 45%
45%
48%
45%
57%
54%
53%
47%
48%
48%
2017-Q4 N=40
2018-Q1 N=44
2018-Q2 N=35
2018-Q3 N=32
2018-Q4 N=49
2019-Q1 N=40
2019-Q2 N=39
Increase
Stay the Same
Decrease
KEY COMMENTS FROM EXECUTIVES ON UTAH’S ECONOMY EXECUTIVES REPORT POLITICAL CLIMATE, HOUSING AFFORDABILITY AND LABOR AS LEADING CONCERNS FOR UTAH’S ECONOMY Q8- 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:
Workforce. The current workforce is not skilled or prepared to enter the job market. Trade wars by Trump are the biggest risk. It is already impacting most of our customers in the manufacturing segment. The corrugated industry has been stagnant, paper prices are in a free fall. Tight labor market will be a drag on the economy. The low employment and labor shortages will make it difficult for Utah businesses to expand and grow. The job market continues to be very tight in technology, risk not finding enough or the right people. Likely to continue to see more in-migration from other states looking for a better business climate. 2019 - Quarter 2
Tariff issues that create volatility but actually have little meaning. The election cycle beginning which tends to put some growth plans on hold. Labor pool availability is hampering our growth and ability to even stay caught up. Inability to recruit semi-skilled labor is our biggest worry. This is leading to wage increases, but even with that, the amount of available workers is insufficient for our needs. Interest rates moderating have extended the cycle. Positives are greater activity. Negatives are larger adjustment in 6-12 months. Tariffs, high construction and land costs and labor remain biggest headwinds. Continued risk in the availability of skilled labor, material tariffs, increased pricing for new construction. 5
KEY COMMENTS
The following two questions change quarterly to reflect current economic conditions:
FROM EXECUTIVES ON UTAH’S ECONOMY EXECUTIVES REPORT SIGNIFICANT IMPACTS ON HIRING AND RETENTION PRACTICES OF THE MODERN WORKFORCE Q9- Utah’s workforce population is increasingly trending younger. How is this affecting your business and hiring practices? Below are highlighted, anonymized quotes from executives:
The younger population appears to have a different work ethic and is driven by different incentives. We will need to continue to evolve our incentive programs to manage productivity. Also, we are seeing an increase in mental illness which is adversely impacting the workplace. Some in the next generation will have incredible opportunities. Conversely, some will not participate and enjoy the benefits if they meet as higher education and/ or technical skills training. Positive impact overall. Different ways of thinking. Less experienced and skilled labor pool. Younger workforce has higher expectations of job perks and benefits, but lack essential skills to perform at an average level. Expect higher than average pay with less skills. It’s making it harder to find people in the niche areas that we are looking for. We have a strong focus on mentorship and leadership training. We will continue to reach out to younger workers through internships and mentorship programs. We are having to do more onboarding and training of some basic skills that in years past younger people already had. More communications skills, basic spelling and grammar, and we continue to see that as an issue in having professional communications.
We are fortunate to have low turnover and an appealing brand. With our younger population, we find we have to engage them more proactively because they want to be involved and challenged. Very tough to maintain status quo with personnel. There is a concern that everybody is going after your people. Trend toward more flexible hours, more emphasis on early career benefits (child care, maternity leave). The workforce is not educated for our highly specialized positions. The workforce is also not loyal which further increases training and recruitment costs. More succession planning, aggressive recruiting, more flexible/generous pay plans. Millennials have a very different view of the workplace. They want more for less. That is a challenge in an environment where client budgets are shrinking and clients are asking more for less. Lack of long-term commitment in the workforce and more frequent turnover makes predicting hiring needs and retention difficult and increases costs of training and investment in new hires and recruiting.
The younger workers have different expectations about how long they will remain at any single company, how teams and collaboration will form the workplace and how they can make a difference to the community, not just work to have a place to collect a paycheck. For a company to remain viable in this changing environment, it needs to adapt to the needs of the changing workforce. With challenges from air pollution to congestion, a should be flexible with starting and ending work hours as well as the ability to work from home. Businesses should facilitate the ability of employees to take transit to work.
6
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
KEY COMMENTS FROM EXECUTIVES ON UTAH’S ECONOMY EXECUTIVES MIXED ON INTERVENING WITH POLICY Q10- Utah’s unemployment rate is now below 3 percent, causing labor shortages and upward pressure on wages. Should elected officials and business community leaders take any action?
54%
46%
Yes
No
Below are highlighted, anonymized quotes from executives that chose “Yes” and elaborated:
There needs to be more of an alignment with universities and the economy. The universities are operating in their own world that is disconnected. Smart Workforce training targeting undereducated and marginalized populations. The effort to help prior Utahns in the justice system needs to be linked to workforce development. We have productive, valuable and educated employees from many areas outside of the US. They come from China, India and many other locations. Be smart about tax reform (do not adversely impact the business community that creates these jobs), consider programs at the universities that target the jobs that are created in Utah, look closely at policies that make housing unaffordable for Utah’s younger workforce.
Get involved in the conversation on immigration to allow qualified, smart people to come to the US. Better post-high school education - certificates, practicums, etc - beyond traditional university degree programs. Ensure that public education (K-12, Technical, State College) is tailored to and meeting the needs of today’s employers. Good immigration policies. I do not know what they are but good people who focus on the matter should be able to develop good plans. Push universities to increase capacity in some areas. Trades is a good example. Not everyone needs a 4 yr degree to be successful.
Encourage more STEM efforts k-12. Encourage universities to train and graduate more tech qualified students.
2019 - Quarter 2
7
KEY ECONOMIC INDICATORS FOR BUSINESS LEADERS QUARTER 2 AVERAGES
UTAH’S EMPLOYMENT SUMMARY
The Utah Department of Workforce Services reported, as of May 2019, that Utah’s employment grew by an estimated 2.9 percent, adding 44,200 jobs to the economy since May 2018. Utah’s current employment level registers 1,556,400. May’s seasonally adjusted unemployment rate of 2.9 percent is unchanged from April’s 2.9 percent. Approximately 45,500 Utahns were unemployed and actively seeking work during the month. The national unemployment rate was also unchanged at 3.6 percent. Utah’s private sector employment grew by 3.1 percent year-over with the addition of 39,200 positions. All 10 of the private sector industry groups measured in the establishment survey posted net job increases in May. “Job seeker opportunities remain robust as we continue to experience strong job growth and markedly low unemployment,” reported Mark Knold, Senior Economist at the Department of Workforce Services. “While the job growth rate did abate a bit in May, it does not reflect an underlying softening in economic demand.”
BUSINESS LEADER SENTIMENT
The Salt Lake Chamber’s CEOutlook Confidence Index increased from 53.2 to 60.1 for 2019-Q2, as a growing number of executives believe economic conditions will remain the same or improve over the next six months (a reading of more than 50 points reflects more positive than negative responses). The Conference Board Measure of CEO Confidence™, which had decreased sharply in the fourth quarter of 2018, increased slightly in the first quarter of 2019. The Measure now reads 43, up from 42 in the fourth quarter of 2018 (a reading of more than 50 points reflects more positive than negative responses). “CEO Confidence increased slightly in Q1, after back-to-back quarterly declines in the second half of 2018,” said Lynn Franco, senior director of Economic Indicators at The Conference Board. “CEOs’ optimism regarding growth prospects for both mature and emerging economies declined considerably over the past year, but with the exception of Europe, sentiment now appears to be on the mend. CEOs say finding qualified workers remains a major obstacle to hiring, much more so than last year.” The MetLife & U.S. Chamber of Commerce Small Business Index rebounded 3.1 points after dropping in the first quarter. The current Index score is 68.7, up from 65.6 last quarter. This uptick is largely due to more positive perceptions of the national economy (outlooks on local economies were statistically unchanged) and continued optimism about business health and cash flow. Notably, the first quarter survey was taken in the midst of the longest federal government shutdown in history, which may have dented optimism in the short term. Some of the key findings this quarter include: 59% of small businesses say the U.S. economy is in good health, up six percentage points from last quarter. 27% of small business owners plan to increase investment in their company over the next year, continuing a trend from the last two quarters. Small businesses’ local outlooks are statistically unchanged from last quarter with 51% saying their local economy is in good health compared to 53% last quarter. 69% of manufacturers feel positive about the national economic outlook, up 16 percentage points from last quarter. The Business Roundtable’s 2019-Q1 CEO Economic Outlook Index is a composite of CEO expectations for sales and plans for capital spending and hiring over the next six months. This quarter, CEO plans remained healthy but decreased, likely reflecting unease about the direction of U.S. trade policy and uncertain prospects for global growth. The Index decreased 5.7 points in the second quarter to a value of 89.5, which exceeds the Index’s historical average of 82.6 and signals a continued positive direction for the U.S. economy. The Index has now exceeded its historical average for 10 consecutive quarters and remains well above the 50-point threshold that historically has indicated the onset of recession.
8
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
CONSUMER PRICES
The Zions Bank Wasatch Front Consumer Price Index increased 1.2% from April to May on a nonseasonally adjusted basis. Year over year, the Wasatch Front Consumer Price Index has grown 3.1%, while the national Consumer Price Index has increased 1.8% since May of last year. For the third consecutive month, rising prices in the transportation sector drove monthly price growth along the Wasatch Front. Transportation prices climbed 2.4% in May, due mostly to rising gasoline and airfare prices. Year over year growth in the transportation sector slowed slightly, down to 1.5% from 1.7% in April. Housing prices also lifted for the fourth straight month, with housing sector prices now 0.8% higher than in April. Hikes in apartment rental rates drove a small portion of the increase; while costs for temporary housing, measured via hotel and motel rates, rose 11% in the past month, a common summer season trend. Significantly, housing’s 12-month price growth, now at 4%, declined for the sixth consecutive month and is at the lowest point since April 2018, suggesting that housing price growth across the Wasatch Front is tempering.
CONSUMER ATTITUDE
The Zions Bank Utah Consumer Attitude Index nudged up 0.9 points to 113.2 in May. The year-overyear CAI increased 2.5 points. In comparison, the national Consumer Confidence Index increased 4.9 points to 134.1 this month. The Utah Present Situation Index dropped slightly, by 0.3 points, to 125.6 in May due to a 1% dip in the percentage of Utahns who feel jobs are plentiful. Meanwhile, Utahns’ confidence in business conditions remains strong, with 61% of Utahns indicating conditions are good. Since May 2018, the Present Situation Index has increased 3.9 points, with more Utahns feeling business conditions are good and jobs are plentiful. The Utah Expectations Index rose 1.7 points to 105.0 in May. Utahns’ expectations for all three key indicators improved, with expectations about job availability improving the most. As of May, 32% of Utahns feel jobs will be plentiful six months from now, a 7% increase since April. Additionally, 37% of Utahns expect their household income will increase in the next six months, the highest level since March 2018 and a 4% increase since April. The Expectations Index also saw its first year-over-year rise since April 2018 as it ticked up 1.6 points since May 2018.
2019 - Quarter 2
9
If you are interested in sponsorship opportunities, please contact Brynn Murdock at bmurdock@slchamber.com The Business H2O: Water Innovation Summit will bring together business leaders, government officials, and water experts to discuss best practices in corporate water stewardship and public policies to address the ever-growing, global demand for water. Hear from leading policy experts, business leaders, investors, government officials, academia and research institutions, Salt Lake Chamber, U.S. Chambers of Commerce and global water innovators.
Questions? Please contact Heidi Walker at hwalker@slchamber.com, (801)328-5081 or visit slchamber.com/dctrip The Salt Lake Chamber’s annual Washington, D.C. Trip is an extraordinary, 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.
10
ABOUT THE SALT LAKE CHAMBER
ABOUT THE KEM C. GARDNER POLICY INSTITUTE
The Salt Lake Chamber is Utah’s largest and longeststanding 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
QUARTERS
Q1
2018 Q2 Q3
Q4
Q1
2019 Q2 Q3
SAMPLE GOAL
3-YEAR CONTRIBUTION
Q4
Finance, Insurance Real Estate, Rental & Leasing
11
10
9
11
10
13
11
25%
Manufacturing
5
3
4
6
3
4
6
14%
Professional & Business Services
5
5
4
5
5
0
5
12%
Retail Trade
4
2
3
3
5
7
3
8%
Education, Health Care & Social Services
2
2
1
3
5
4
3
8%
Construction
4
4
1
3
5
3
3
6%
Wholesale Trade
3
1
2
3
1
1
3
6%
Information
2
2
1
2
1
0
2
5%
Mining
2
2
2
2
1
1
2
4%
Arts, Entertainment, Recreation & Accommodation
2
2
1
2
2
0
2
4%
Transportation & Warehousing
1
1
1
2
1
5
2
4%
Other
1
0
2
1
0
1
1
3%
Utilities
1
1
1
1
1
1
1
>1%
Agriculture, Forestry, Fishing & Hunting
0
0
0
0
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 Heidi Walker COO Salt Lake Chamber 801-328-5081 hwalker@slchamber.com
2019 - Quarter 2
Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber 801-585-5618
Dianne Meppen Director of Survey Research Kem C. Gardner Policy Institute 801-585-5618
natalie.gochnour@eccles.utah.edu
dianne.meppen@utah.edu
11
NOTES
12
CEOutlook: Utahâ&#x20AC;&#x2122;s Quarterly Economic Survey of Business Executives
NOTES
2019 - Quarter 2
13