CEOutlook 2018 - Quarter 4

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 2018 - QU ART ER 4

Utah’s Economic Fundamentals are Still Strong A decade ago, few would have thought that Utah would have the nation’s top job and population growth. But our success is the result of an intentional effort to make the state the global business destination it is today.

Last quarter, I mentioned the changing global economic indicators. While Utah is not immune from the broader economic trends, it appears this quarter that business leaders remain cautiously optimistic about Utah’s economic trajectory.

There is no question that there is more uncertainty facing business, civic and elected leaders.

That is why it is essential that we understand that, as business leaders, we can play an active role in defining our future.

Derek B. Miller President and CEO Salt Lake Chamber

One business leader’s comment stood out to me from this quarter’s results: “I fear that many business leaders (in Utah and beyond) will talk ourselves into a recession by curtailing expansion and growth.”

These wise words remind me that it’s more important than ever for business and community leaders to focus on the positive and be aspirational about our future. The good news for Utah is there is a lot to be positive about. Just think of the efforts currently taking place to develop an inland port in Utah, the $3.4 billion rebuild of our international airport, the record IPO and acquisitions in the Silicon Slopes and, looking way ahead, the possibility of hosting a second Winter Olympic Games. Many states would be lucky to have one of these opportunities. Fortunately for Utah, we have several once-in-a-generation opportunities on the horizon.

We must not forget that Utah remains focused on our fundamentals—those tried-and-true principles that have made Utah the economic powerhouse it is today. The steady hand of business leadership will always be mindful of external economic factors, but at the end of the day we can shape our own destiny and will continue to make smart decisions when it comes to our economic future.

Making Decisions to Keep the Expansion Going The U.S. and Utah economy just finished a banner year. U.S. real GDP growth will post a near 3 percent gain for 2018, the strongest of the nearly decade-long expansion. Utah job growth continues to impress at a year-over 2.9 percent.

A majority of executives (61%) in the CEOutlook are still anticipating moderate or significant profit growth in the year ahead. I agree, but still urge caution. Rising labor, interest, housing, material, and transportation costs will ultimately mute growth. It’s just a matter of when.

We are starting 2019 strong, but sentiment is waning. The CEOutlook Confidence Index decreased from 60.9 in 2018-Q3 to 55.5 for 2018-Q4.

Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber

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Predicting the timing of a downturn—or even more modest growth—is exactly why we collect this data. Utah needs a reliable leading indicator. After all, economists have predicted 11 of the past three recessions!

The challenge will be to make decisions that extend this expansion even longer. If any state can do it, Utah can.

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 decreased from 60.9 in 2018-Q3 to 55.5 for 2018-Q4, as executives continue to report cautious optimism for the nation’s top-performing economy. 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

Index Utah Job growth

62.8

0%

66.3

15

2017-Q1

2017-Q2

2017-Q3

2017-Q4

2018-Q1

2018-Q2

2018-Q3

2018-Q4

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%

0

Concern <50

75 3%

>50 Optimisim

90

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.

QUARTER

CONDUCTED

SAMPLE

Quarter 1

February-March 2018

44

Quarter 2

May-June 2018

35

Quarter 3 Quarter 4

August-September 2018 November-December 2018

32 49 2018 - Quarter 4

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HOLDING STEADY: MAJORITY OF EXECUTIVES REPORT SIMILAR ECONOMIC CONDITIONS FOR UTAH’S ECONOMY AS COMPARED TO PREVIOUS SIX MONTHS. NEARLY ONE THIRD OF EXECUTIVES NOTE IMPROVEMENT, WHILE TREND POINTS TO MODERATING ENVIRONMENT. How would you describe the current economic conditions in Utah compared to six months ago?

CURRENT ECONOMIC CONDITION INDEX

Optimism > 50

70

67.0

65.9

65.0

64.4

64.2

65.0

63%

61.7

60

55.6

50 40

Concern < 50

30

27%

20 8%

10 2%

0%

0 2017 Q1

2017 Q2

2017 Q3

Significantly Better

2017 Q4

2018 Q1

Somewhat Better

2018 Q2

2018 Q3

About the Same

2018 Q4

2018-Q4 N=49

Somewhat Worse

Significantly Worse

MORE OF THE SAME: MAJORITY OF EXECUTIVES ANTICIPATE UTAH’S STRONG ECONOMY WILL HOLD STEADY IN MONTHS AHEAD. TREND POINTS TO MODERATED EXPECTATIONS FOR 2019.

What is your expectation for economic conditions in Utah six months from now?

CURRENT ECONOMIC EXPECTATION INDEX

Optimism > 50

70

67%

66.1 61.7

59.2

60

58.8

61.4

61.4 55.5 50.0

50 40

Concern < 50

30 20

16%

10 0%

0 2017 Q1

2017 Q2

2017 Q3

Significantly Better

2017 Q4

2018 Q1

Somewhat Better

2018 Q2

2018 Q3

About the Same

2018 Q4 Somewhat Worse

*Some totals may appear to not exceed 100% due to rounding for simplification.

3

16%

CEOutlook: Utah’s Quarterly Economic Survey of Business Executives

0% 2018-Q4 N=49 Significantly Worse

MIXED SIGNALS: EXECUTIVES REPORT VARIED EXPECTATIONS FOR INDIVIDUAL INDUSTRY. TREND POINTS TO MODERATING EXPECTATIONS, BUT ONE THIRD OF EXECUTIVES EXPECT IMPROVING CONDITIONS. What is your expectation for your own industry six months from now?

INDUSTRY EXPECTATION INDEX

Optimism > 50

70

67.9

62.5 59.7

59.9

60

63.6

58.1

57.8 53.1

50 43% 40 29%

Concern < 50

30

24%

20 10

4% 0%

0 2017 Q1

2017 Q2

2017 Q3

Significantly Better

2017 Q4

2018 Q1

Somewhat Better

2018 Q2

2018 Q3

About the Same

2018-Q4 N=49

2018 Q4

Somewhat Worse

Significantly Worse

POSITIVE OUTLOOK ON PROFITS: MAJORITY OF EXECUTIVES ANTICIPATE MODERATE PROFIT GROWTH IN YEAR AHEAD. INCREASED DEMAND AND COST REDUCTIONS LEAD REPORTED REASONS. TREND REMAINS CONSISTENT. What are your expectations for your firmâ&#x20AC;&#x2122;s profits in the next 12 months?

EXPECTATION OF PROFIT INDEX 70 Optimism > 50

64.3

68.6

66.5 61.7

60

61.3

61.4

63.3

59.3

53% 50 40

Concern < 50

30 22% 20

16% 8%

10

0%

0 2017 Q1

2017 Q2

Increase Considerably

2017 Q3

2017 Q4

Increase Moderately

2018 Q1

2018 Q2

2018 Q3

Remain the Same

2018 Q4 Decrease Moderately

2018-Q4 N=49 Decrease Considerably

*Some totals may appear to not exceed 100% due to rounding for simplification.

2018 - Quarter 4

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HELP WANTED: PLURALITY OF EXECUTIVES EXPECT TO INCREASE PAYROLLS IN 2019.

RESULTS RETURN TO TRENDLINE FOR EXPECTATIONS. Do you expect the overall headcount at your company to increase, decrease or stay the same over the next 12 months?

10%

9%

3%

34%

43%

45%

41%

8%

6%

45%

45%

57%

54%

53%

47%

2017-Q4 N=40

2018-Q1 N=44

2018-Q2 N=35

2018-Q3 N=32

2018-Q4 N=49

Increase

Stay the Same

Decrease

WAGES ON THE RISE: OVERWHELMING MAJORITY OF EXECUTIVES EXPECT LABOR COSTS TO RISE IN YEAR AHEAD In October 2018, wages nationally rose at the fastest pace in nine years. How much do you anticipate your labor costs will change in the coming year?

10%

76%

14%

0%

0%

2018-Q4 N=49

Increase Considerably 5

Increase Moderately

Remain the Same

CEOutlook: Utahâ&#x20AC;&#x2122;s Quarterly Economic Survey of Business Executives

Decrease Moderately

Decrease Considerably

KEY COMMENTS FROM EXECUTIVES ON UTAH’S ECONOMY Below are highlighted, anonymized quotes from executives:

EXECUTIVES CONCERNED ABOUT THE NEED OF SKILLED TALENT, RISING HOUSING PRICES AND DECLINING SENTIMENT. POSITIVES ARE STATE’S RECENT ECONOMIC SUCCESS AND NATIONAL NOTORIETY AS BEING BUSINESS FRIENDLY. 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?

Housing costs will be a deterrent to growth at some point in the future.

Due to low unemployment rate, we expect upward pressure on wages that will reduce profitability.

Interest rates increase will cause housing sales to slow down, costs reduced. Utah is now on the map nationally. Increased business here with influx of population and growth from other states.

Tariffs are a real concern in my business. I recognize it’s a mixed blessing and challenge.

Our backlogs in every segment of our business are stronger than 12 months ago. Utah’s fundamental economic drivers (population growth, business expansion into Utah, housing demand) remain strong.

I fear that many business leaders (in Utah and beyond) will talk ourselves into a recession by curtailing expansion and growth.

The tax law changes should benefit and help our business. The job growth and economy seem strong still, but the duration of the expansion and reality of cycles cause me to be cautiously optimistic.

Workforce availability. The mounting pressure to find skilled workforce and remain competitive in wages is very hard. Especially when companies who are relocating here are getting an unfair advantage with large incentives.

Costs of construction—labor and material have increased to the point owners may wait on the sidelines.

LACK OF CONSENSUS ON NEW NAFTA AGREEMENT. Do you anticipate the new U.S. trade pact with Canada and Mexico impacting your business? How?

We do a lot of exporting to Mexico. We have a significant amount of work to do to rebuild relationships with our partners in Mexico.

Negatively as a whole for business.

We operate in both countries and support a strong trade relationship with each.

It should stabilize some key inputs costs for building products (e.g. Canadian lumber).

I don’t know what has changed. If it facilitates trade, it will be good.

Yes, and we hope positively if the trade tariffs are taken off of commodities such as lumber, steel, aluminum, etc.

Likely only a minimal impact.

No meaningful impact.

Minimal impact on our industries.

Perhaps. Big item in construction is to get immigration figured out for laborers.

2018 - Quarter 4

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KEY ECONOMIC INDICATORS FOR BUSINESS LEADERS QUARTER 4 AVERAGES

UTAH’S EMPLOYMENT SITUATION

The Utah Department of Workforce Services reported, as of December 21, 2018, that Utah’s employment grew by an estimated 2.9 percent, adding 43,000 jobs to the economy since November 2017. Utah’s current employment level registers 1,542,600. October’s year-over job growth rate was revised upward one-tenth to 3.3 percent.

November’s seasonally adjusted unemployment rate remained unchanged from the prior month at 3.2 percent. Approximately 50,000 Utahns were unemployed during the month and actively seeking work.

The national unemployment rate also remained unchanged from last month at 3.7 percent. Utah’s private sector employment grew by 3.0 percent year-over with the addition of 37,200 positions. Eight of the 10 private sector industry groups measured in the establishment survey posted net job increases in November, while Natural Resources and Mining lost 100 jobs year-over and the Information industry lost 400.

“Utah’s job growth continues to exhibit some softening as the year-over growth declines a few tenths of a percentage from prior months,” reported Carrie Mayne, chief economist at the Department of Workforce Services. “Work opportunities remain plentiful however, so the slight slowing may be due to the prolonged low unemployment rate as tight labor supply can restrain potential job growth.”

BUSINESS LEADER SENTIMENT

The Salt Lake Chamber’s CEOutlook Confidence Index decreased from 60.89 to 55.48 for 2018-Q4, as executives continue to report cautions optimism for the nation’s top-performing economy (a reading of more than 50 points reflects more positive than negative responses).

The Conference Board Measure of CEO Confidence™, which had decreased slightly in the second quarter of 2018, declined again in the third quarter. The Measure now reads 55, down from 63 in the second quarter (a reading of more than 50 points reflects more positive than negative responses).

“CEO Confidence declined further in the third quarter and is now at its lowest level in two years. However, CEOs remain confident about growth prospects in the US,” said Lynn Franco, director of Economic Indicators at The Conference Board.

The MetLife & U.S. Chamber of Commerce Small Business Index has dipped slightly this quarter to 69.3 from its record high of 69.9 in Q3, remaining high overall but indicating a pause in the upward trend observed over the past year. Small business owners continue to be increasingly positive about the health of the national and local economy. In line with their growing economic optimism, more than a quarter of businesses say they plan to invest more in their companies and increase their staff in the coming year.

However, among those currently searching for new staff, two in three say that it is hard to find candidates in their geographic area with the skills and experience they require.

Business Roundtable’s 2018-Q4 CEO Economic Outlook Index—a composite of CEO expectations for sales and plans for capital spending and hiring over the next six months. The Index remained at a historically high value, reflecting a strong CEO outlook for the U.S. economy. However, Q4 marks the third consecutive quarter in which the Index declined from the previous quarter, reinforcing the importance of removing barriers to trade, including tariffs, and continuing to advance domestic policies to stimulate hiring, capital investment and economic growth.

Declining 4.9 points from 109.3 in the third quarter of 2018, the Q4 2018 CEO Economic Outlook Index of 104.4 ranks among the top 10 percent of all readings in the survey’s 16-year history and is well above the historical average of 82.1. This is the eighth straight quarter where the Index has exceeded its historical average, signaling a continued positive direction for the U.S. economy.

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CEOutlook: Utah’s Quarterly Economic Survey of Business Executives

CONSUMER PRICES

The Zions Bank Wasatch Front Consumer Price Index increased 0.1 percent from October to November on a non-seasonally adjusted basis.

Year over year, the Index grew by 5.2 percent, while the National Consumer Price Index decreased by 0.3 percent since November of last year.

Rising housing prices made up the vast majority of the slight price rise in November, with apartment rental rates—up 0.7 percent—driving the largest month-to-month increase in housing prices seen in any November since Zions Bank began tracking consumer prices in 2010.

The cost of food at home also rose as produce prices increased heading into winter in conjunction with recent concerns about E. coli in romaine lettuce boosting demand for other produce.

Utility and transportation prices declined month over month, a news release states, attributable to scheduled seasonal decreases in water and gas rates. Utility prices dropped 3.5 percent in November and transportation costs dropped 0.4 percent, marking the fifth consecutive month that transportation rates have fallen.

CONSUMER ATTITUDE

The Zions Bank Utah Consumer Attitude Index (CAI) remained unchanged from October to November at 120.5. Year-over-year the CAI decreased by 3.9 points compared to November last year. The national Consumer Confidence Index® decreased 2.2 points to 135.7 this month.

“Utahns tend to be both grounded and optimistic,” said Scott Anderson, president and CEO of Zions Bank. “Sentiment about the current state of the economy has steadily improved overall since 2011, right along with general economic conditions. It is clear that Utahns currently believe business conditions are healthy and vibrant here in the state.”

The Utah Present Situation Index increased 2.6 points to 133.7 while the Utah Expectations Index dropped 1.8 points to 111.7. Utahns’ sentiment remains highly positive, with 64 percent believing business conditions are good, the highest level recorded since Zions Bank began tracking the CAI in 2011. Similarly, sentiment on current job availability is nearly as positive as it has ever been, with 63 percent of Utahns feeling jobs are plentiful.

The year-over-year drop in the Utah Expectations Index is due largely to a stabilizing of Utahns’ expectations regarding future business conditions; 26 percent feel business conditions will improve, six percent less than in November 2017. Similarly, more Utahns are feeling that household income and job availability will remain the same in the coming months as compared to those who feel that conditions will improve. Utahns are also anticipating a tempering of housing prices, with 53 percent feel housing prices will increase over the next 12 months. That is the lowest percentage since December of 2015.

2018 - Quarter 4

8

If you are interested in sponsorship opportunities, please contact Brynn Mortensen: bmortensen@slchamber.com The Salt Lake Chamber’s Cybersecurity Conference has become one of the most renowned chamber of commerce cyber events in the nation.

In order to maintain resilience and remain competitive, Utah’s business leaders need to familiarize themselves with this all too pressing issue.

The Cybersecurity Conference will lead CEO’s, CFO’s, HR professionals and others through the practical skills and foundational knowledge they need to do their jobs well in our modern economy.

If you are interested in sponsorship opportunities, please contact Jackie Sexton: jsexton@slchamber.com The Salt Lake Chamber Board of Governors established the Giant in our City award in 1969. The award was created to honor the lives of exceptional and distinguished public service and extraordinary professional achievement. It is considered the Chamber’s most prestigious award and is given periodically by the Chamber Board of Governors.

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.

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CEOutlook: Utah’s Quarterly Economic Survey of Business Executives

RESPONDENT INDUSTRY MAKE UP SECTOR

NUMBER RESPONDING

2018

Q1

Q2

Q3

Q4

11

10

9

11

11

25%

Manufacturing

5

3

4

6

6

14%

Professional & Business Services

5

5

4

5

5

12%

Retail Trade

4

2

3

3

3

8%

Education, Health Care & Social Services

2

2

1

3

3

8%

Construction

4

4

1

3

3

6%

Wholesale Trade

3

1

2

3

3

6%

Information

2

2

1

2

2

5%

Mining

2

2

2

2

2

4%

Arts, Entertainment, Recreation & Accommodation

2

2

1

2

2

4%

Transportation & Warehousing

1

1

1

2

2

4%

Other

1

0

2

1

1

3%

Utilities

1

1

1

1

1

>1%

Agriculture, Forestry, Fishing & Hunting

0

0

0

0

0

<1%

Finance, Insurance Real Estate, Rental & Leasing

TOTAL POSSIBLE

3-YEAR CONTRIBUTION

*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

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

aosborne@slchamber.com

natalie.gochnour@eccles.utah.edu

dianne.meppen@utah.edu

2018 - Quarter 4

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