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 1
What is economic leadership? For me, it is when collaboration and good information leads to purposeful and transformative decisions. In an ever-increasing globalized, polarized and disruptive world, economic leadership defines a community. And Utah has it in spades. The steady hand of business leadership and the willingness of our state’s elected officials to tackle significant issues is the hallmark of the 2018 Legislative Session. Once again, we worked together as a state to ensure that we’re set up for success now and into the foreseeable future. Legisative actions on education funding, tax modernization, transportation reform, infrastructure investment and the advancement of critical economic development priorities bode well for our future success. This kind of economic leadership is critical to a healthy economy and for supporting optimism in the marketplace. During this quarter, the CEOutlook Confidence Index shows an increase in executive’s optimism for the economy. The index rose from 60.63 to 62.36, a reversal of several quarters of decline. This rise is a welcome sign that business leaders’ already strong confidence about the Utah economy is increasing.
Lane Beattie President and CEO Salt Lake Chamber
It is essential to understand this rise in confidence and what may put it at risk. Going behind these numbers, executives shared their thoughts on trends, uncertainties and other factors that may have an impact on Utah’s economy. They had strong praise for the federal tax reform efforts, growing concerns about housing prices and a watchful eye towards rising interest rates. I share their optimism, and concern, and urge business, civic and elected leaders to take note of these findings. And, where possible, continue to demonstrate economic leadership to solve problems, think ahead and keep our community prosperous.
Utah’s economic red and green flags The Utah economy continues to impress, even as several red flags appear on the horizon. On the positive side, or what you might call the green flags, the Utah labor market continues to create jobs at a rapid clip. Every major industry is growing. People are moving to the Beehive State for employment opportunities. This in-migration, coupled with significant wage growth, contribute to strong consumer spending and tax revenue growth. Fiscal policy fuels optimism as the short-term benefits of the $1.2 trillion federal tax cut ripple through the economy. Business leaders know, however, that Utah’s strong economic performance will be impacted by the red flags of tightening monetary policy/rising costs. I expect we will see three more rate hikes in 2018. In addition to rising borrowing costs, the Utah economy faces intensifying labor, land, housing and material costs. Protectionist trade policies will also create problems for Utah’s export economy, which accounts for approximately one in five jobs. The CEOutlook survey and confidence index confirms Utah business leaders see economic positives and negatives. Overall, sentiment is strong, but based on their comments, Utah leaders are also paying close attention. They recognize these are prosperous times but also see the risks of an overheating economy. There is a potential dark side to the fiscal stimulus once it fades and the ill effects of higher interest rates take hold.
Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber
We have now completed five quarters of the CEOutlook survey. If I’ve learned anything, it’s that Utah business leaders are paying close attention to the green and red flags in the Utah economy. That alone is good news and bodes well for Utah’s future economic performance.
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%
100
3%
85 70
2.5%
1.5%
15
1% 0% Index Utah Job growth
62.36
30
60.63
2%
62.00
50
62.84
2.5%
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%
>50 Optimisim
3%
3.1%
66.29
Year-Over Job Growth
3%
3.1%
Concern <50
3.5%
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 2018
Quarter 3
August-September 2018
Quarter 4
November-December 2018
2018 - Quarter 1
STILL IMPROVING: MAJORITY OF EXECUTIVES REPORT UTAH’S ECONOMY CONTINUES TO GAIN STRENGTH 1 - How would you describe the current economic conditions in Utah compared to six months ago?
56%
54% 42%
5%
50% 43%
42%
0% 0%
2%
5%
0% 0%
2017-Q2 N=41
2017-Q3 N=45
Significantly Better
50%
Somewhat Better
43%
3%
0%
5%
2017-Q4 N=40 About the Same
2%
0%
2018-Q1 N=44
Somewhat Worse
Significantly Worse
OPTIMISM CONTINUES: MAJORITY OF EXECUTIVES SEE UTAH’S ECONOMY IMPROVING IN THE NEXT SIX MONTHS 2 - What is your expectation for economic conditions in Utah six months from now?
55%
52%
51% 45% 45%
3%
41%
38%
37%
5%
10%
7%
4%
0%
2017-Q2 N=38 Significantly Better
0%
Somewhat Better
0%
0%
2017-Q3 N=45
7%
2017-Q4 N=40 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%
0% 2018-Q1 N=44
Significantly Worse
INDUSTRY OPTIMISM: MAJORITY OF EXECUTIVES ARE MORE OPTIMISTIC ABOUT OWN INDUSTRY THAN ECONOMY-A FIRST FOR CEOUTLOOK 3 - What is your expectation for your own industry six months from now? 55%
50%
50%
43%
41%
40%
27% 16%
21% 13%
11%
15%
11%
0%
3%
0%
2017-Q2 N=41
2017-Q3 N=45
Significantly Better
Somewhat Better
0% 2017-Q4 N=40
About the Same
5%
0%
0%
2018-Q1 N=44
Somewhat Worse
Significantly Worse
DAMPENED EXPECTATIONS: FEWER EXECUTIVES ANTICIPATE PROFIT GROWTH THAN PREVIOUS QUARTERS 4 - What are your expectations for your firmâ&#x20AC;&#x2122;s profits in the next 12 months?
58% 52%
51% 45% 38%
37%
34% 23%
8%
18%
14%
9% 3%
0%
2017-Q2 N=38 Increase Considerably
2%
0% 2017-Q3 N=45
Increase Moderately
7%
3% 2017-Q4 N=40
Remain the Same
0%
0%
Decrease Moderately
2018-Q1 N=44 Decrease Considerably
*Some totals may appear to exceed 100% due to rounding for simplification.
2018 - Quarter 1
TAX REFORM STANDS OUT AS “OTHER” FACTOR DRIVING FUTURE 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 61%
9%
54%
8%
42%
4%
43%
13%
INCREASED PRICES
OTHER*
9%
22% 21%
17% 33%
21%
17%
26% 2017-Q2 N=20
2017-Q3 N=24
2017-Q4 N=24
2018-Q1 N=23
*Other - selected comments: “A combination of increased sales, increased efciencies, and increased costs. Our plan is that the former outweigh the latter.” “Expansion[,] [i]ncreased rents and reduced vacancy in CRE.” “New technology and innovation for customers. Increased profts from federal tax reform.”
DECREASED DEMAND, INCREASED INVESTMENT AND EXPENSES LEAD CONCERNS FOR EXECUTIVES EXPECTING DECLINING PROFITS 6 - Which factor do you anticipate will be the primary driver in decreasing profits over the next 12 months? DECREASED DEMAND
INCREASE IN COSTS 0%
0%
0%
25%
29%
43% 17%
50% DECREASED PRICES
OTHER* 100%
0%
0%
75% 14%
14% 0%
33% 2017-Q2 N=1
2017-Q3 N=4
2017-Q4 N=7
*Other - selected comments: “Declining revenue” “Rents.” CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
2018-Q1 N=6
HIRING EXPECTATIONS PICK UP EVEN IN TIGHT LABOR MARKET
2017-Q3 N=45
2017-Q4 N=40
Increase
9%
9%
10%
33%
34%
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?
2018-Q1 N=44
Stay the Same
Decrease
UTAH’S TIGHT LABOR MARKET AND INCREASING HOUSING PRICES LEAD RISKS FOR EXECUTIVES. FEDERAL TAX REFORM AND STATE’S STRONG ECONOMY LEAD POSITIVES 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:
“Concerned about broader impacts from administration’s action on trade and tariffs.” “Concern about a recession.”
“Housing prices are getting too high. This may slow sales because consumers cannot afford the prices.” “The federal tax reform package was a big positive for our company.”
“Increasing short and long term (10-Year Treasury) interest rates, over building of new industrial/commercial real [estate] are emerging risk factors.”
“Continual labor shortages will drive up labor prices.” “Given the diverse nature of Utah’s economy, a strong economy nationwide will likely benefit Utah businesses. As our business improves, our Utah based employees will earn more money and our hiring will increase.” “The stable business climate is very positive for Utah.” “Shortage of skilled labor and vocationally oriented employees.” “Transportation infrastructure projects will continue to drive the economy both in terms of employment for workers on these projects and then to drive the ability for Utah to move goods and services more effectively.” 2018 - Quarter 1
EXECUTIVES CONCERNED ABOUT INTEREST RATES DAMPENING ECONOMIC GROWTH, SPECIFICALLY HOUSING 9 - What do you anticipate will be the impact of further interest rate hikes on your company? Below are highlighted, anonymized quotes from executives: “Assuming interest rates are increasing as a result of the improving economy, the improvements in results will cover the increased cost of borrowing.” “The increase in interest rates will create a headwind as new homeowners will spend more on monthly mortgages and new builds will moderate.”
“We are concerned that business borrowing and inventory will decline.”
“Further hikes should temper real estate price inflation.” “It makes all aspects more expensive, and businesses much more skittish.” “Little impact.” “May curtail business loan options for expansion due to interest rate hikes.”
“We do not anticipate any negative impacts.”
MAJORITY OF EXECUTIVES SEE LITTLE IMPACT, BUT INCREASED FRUSTRATION FROM GOVERNMENT SHUT DOWNS. BUSINESSES ALIGNED WITH FEDERAL SPENDING HAMPERED 10 - What impact do federal government shut downs have on your company? Below are highlighted, anonymized quotes from executives:
“If they are short we really feel relativity little impact.” “It just ticks us off! And reiterates to everyone here and abroad that our federal political system is dysfunctional and inefficient. And some of our own beloved Utah politicians are responsible for this problem (obviously).”
“None, other than just general unhappiness with the political environment.”
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
“The federal government accounts for about 40% of our sales, any shutdown is a significantly negative impact.” “Very minor impact. We wish the government would figure out a way to get something done together, and not govern through regulation and more red tape. We are optimistic that improvement will take place under the current administration.”
“It effects small businesses most significantly.”
KEY ECONOMIC INDICATORS FOR BUSINESS LEADERS QUARTER 1 AVERAGES UTAH’S EMPLOYMENT SITUATION The Utah Department of Workforce Services reported, as of March 2, 2018, Utah’s nonfarm payroll employment for January 2018 grew by an estimated 2.9 percent, adding 41,300 jobs to the economy since January 2017. Utah’s current employment level registers 1,473,300. December’s year-over job growth was revised from 2.7 percent to 3.1 percent. January’s seasonally adjusted unemployment rate dropped one-tenth of a percentage point from the prior month to 3.1 percent. Approximately 49,200 Utahns were unemployed during the month and actively seeking work. The national unemployment rate remained unchanged from December at 4.1 percent.
BUSINESS LEADER SENTIMENT The Salt Lake Chamber’s CEOutlook Confidence Index increased from 60.63 to 62.36, a reversal of several quarters of decline. This rise is a welcome sign that business leaders already strong confidence about the Utah economy is increasing. Conference Board Measure of CEO Confidence™, which declined in the third quarter, bounced back in the fourth quarter of 2017. The Measure now reads 63, up from 59 in the third quarter (a reading of more than 50 points reflects more positive than negative responses). The Q1 MetLife & U.S. Chamber of Commerce Small Business Index rose to 66.3, up three points from the fourth quarter. The Business Roundtable Q1 2018 CEO Economic Outlook Index - a composite of CEO projections for sales and plans for capital spending and hiring over the next six months - increased to 118.6 in the first quarter of 2018, the highest level since the survey began in the fourth quarter of 2002.
CONSUMER PRICES The Zions Bank Wasatch Front Consumer Price Index (CPI) increased 0.5 percent from January to February on a non-seasonally adjusted basis. Year-over-year, the Wasatch Front Consumer Price Index has grown 3.6 percent, while the National Consumer Price index has increased 2.2 percent since February of last year. Rising prices within the transportation and housing sectors are causing the majority of the increase in overall cost of living statewide.
CONSUMER ATTITUDE The Zions Bank Utah Consumer Attitude Index (CAI) held steady, registering at 117.9 in February — the same level as last month. An index over 110 is an indicator of optimal economic confidence. In comparison, the national Consumer Confidence Index rose 6.5 points to register at 130.8 for the month — nearly 15 points higher than this same time last year. Although consumer sentiment remains highly positive across the state, the Zions Bank Present Situation Index, which measures current consumer sentiment, decreased slightly from 125.2 in January to 124.8 in February. The slight decline was offset by minor increases in the Zions Bank Expectations Index, a measure of consumer sentiment six months into the future, that rose 0.2 points from 113.1 last month to 113.3 this month.
2018 - Quarter 1
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 Q2
Q3
TOTAL POSSIBLE
3-YEAR CONTRIBUTION TO GDP
2018
Q1
Q4
Finance, Insurance Real Estate, Rental & Leasing
11
15
25%
Manufacturing
5
8
14%
Professional & Business Services
5
7
12%
Retail Trade
4
5
8%
Education, Health Care & Social Services
2
5
8%
Construction
4
4
6%
Wholesale Trade
3
3
6%
Information
2
3
5%
Mining
2
2
4%
Arts, Entertainment, Recreation & Accommodation
2
2
4%
Transportation & Warehousing
1
2
4%
Other
1
2
3%
Utilities
1
1
>1%
Agriculture, Forestry, Fishing & Hunting
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 analyze the survey. Fifty business executives from Utah’s fourteen major industries are asked 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 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 1