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 3
Utah CEOs are Watching and Waiting Opinion surveys can be invaluable when it comes to building a strategy and setting corporate objectives. Toward this end, the Salt Lake Chamber provides this regular CEOutlook, as well as the new UtahOutlook, to gauge opinion from Utahns throughout the state. However, polls are also reflective of the moment they are taken, and we live in a time when economic winds and influential news can change quickly. For these reasons, we conduct these polls regularly and encourage our members to take the information in context. This quarter’s findings indicate why. From the data, we know that Utah remains in solid economic territory as job growth is brisk and unemployment low. Our business leaders have not only helped create the current expansion, which is the longest on record, but they are keenly aware of the economic opportunities and risks in the current environment. Derek B. Miller President and CEO Salt Lake Chamber
On the other hand, we see that recent uncertainty regarding trade and other national economic indicators have affected Utah CEOs, the majority of whom believe that while our economy remains consistent there is cause for concern in the third quarter. What caught my eye wasn’t so much the decline in the CEOutlook Economic Index, but the magnitude of the drop – a full 6.8 percentage points. From my perspective, two conditions explain this. First, the third quarter saw signs of a moderating economy. Consumer confidence waned and trade uncertainty persisted. Second, it is likely that actions taken by the Federal Reserve Board in June positively influenced the outlook of our CEOs in the second quarter of this year. The Fed’s June decrease in rates showed how serious they were in their efforts to lengthen the current expansion. So while these conditions affected this most recent survey, the takeaway is that the fundamentals remain strong. Going into this new legislative season, the Chamber will continue to work handin-hand with state and local leaders to keep those fundamentals strong and promote policies that best serve the economic well-being of our economy, businesses, families, and future.
“About the Same” and Cresting: Is the Utah Economy Entering a new Phase? In the eyes of Utah’s chief executives, the Utah economy has moved solidly into the “about the same” category. Seven in ten respondents to the third quarter CEOutlook question concerning economic conditions compared to six months ago selected the about-the-same category. No respondent opined that economic conditions in Utah six months from now would be “significantly better.” Profit expectations over the next year still appear strong, with increasing demand leading the way. When asked to call out specific economic concerns business leaders point in greatest numbers to trade wars, labor shortages, and housing affordability.
Natalie Gochnour Director and Chief Economist Kem C. Gardner Policy Institute and Salt Lake Chamber
It’s a great time in Utah, but in the eyes of business leaders, the Utah economy appears to be cresting. A cresting Utah economy is strong compared to most. It may even give Utah leaders a chance to catch their breath! I remain enthusiastic about Utah business, even in a moderating economic climate. It will be interesting to see the fourth quarter results.
SALT LAKE CHAMBER’S CEOUTLOOK CONFIDENCE INDEX AND JOB GROWTH The Salt Lake Chamber’s CEOutlook Confidence Index decreased from 60.1 in 2019-Q2 to 53.3 for 2019-Q3, as executives report economic conditions should hold steady. 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. 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
53.3
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
19-Q3
66.3 3.0%
62.8 3.1%
62.0 2.5%
60.6 3.0%
62.4 3.4%
62.3 3.3%
60.9 3.4%
55.5 3.2%
53.2 3.1%
60.1 2.9%
53.3 2.9%
0
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 U.S. Bureau of Labor Statistics seasonally adjusted series of current employment statistics.
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
42 —
1
MAJORITY OF EXECUTIVES BELIEVE UTAH’S ECONOMY HAS HELD STEADY 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
71%
65.0 61.7
60
58.8
55.6
54.8
50
50.0
40 30 24% 20 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
0%
2019 Q3
Somewhat Worse
2019-Q3 N=42
Significantly Worse
BUSINESS AS USUAL: MAJORITY OF EXECUTIVES EXPECT ECONOMIC CONDITIONS TO REMAIN THE SAME 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
55%
50.0
50
48.2
45.6
40 30
26% 19%
20 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 Q3 Somewhat Worse
0% 2019-Q3 N=42
Significantly Worse
*Some totals may appear to exceed 100% due to rounding.
2
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
MAJORITY OF EXECUTIVES EXPECT ECONOMIC CONDITIONS IN THEIR RESPECTIVE INDUSTRIES TO HOLD STEADY OR WORSEN SIX MONTHS FROM NOW Q3- What is your expectation for your own industry six months from now?
INDUSTRY EXPECTATION INDEX 70
67.9
62.5 59.9
60
63.6
59.7
53.1
58.1
50
62%
59.4
57.8 53.1
48.2
40 30
24%
20 12% 10 2%
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
About the Same
2019-Q3 N=42
2019 Q3
Somewhat Worse
Significantly Worse
MAJORITY OF EXECUTIVES OPTIMISTIC FOR THEIR OWN FIRM’S PROFITS Q4- What are your expectations for your firm’s profits in the next 12 months?
EXPECTATION OF PROFIT INDEX 70 60
68.6
66.5 61.7
64.3
61.3
63.3
61.4
64.1
66.0 61.9
59.3
50%
50 40 30
26%
20
17%
10
7% 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 Q3 Decrease Moderately
2019-Q3 N=42 Decrease Considerably
*Some totals may appear to exceed 100% due to rounding.
2019 - Quarter 3
3
OF THE RESPONDENTS ANTICIPATING INCREASING PROFITS, INCREASED DEMAND TOPPED LIST OF CITED 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%
22% 29% 4% 4%
17% 9%
13%
10%
42%
43%
73%
67%
38%
48%
63%
52%
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
2019-Q3 N=23
Increased Demand
Increased Prices
Reduction in Costs
Other
OF THE RESPONDENTS ANTICIPATING DECREASING PROFITS, INCREASE IN COSTS AND TARIFFS WERE CITED AS PRIMARY DRIVERS Q6- Which factor do you anticipate will be the primary driver in decreasing profits over the next 12 months?
14% 25% 33% 40% 50% 43%
43%
25% 13%
20% 33%
67%
14%
33%
50%
14%
29%
17%
33%
50%
38%
40%
33%
14%
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
2019-Q3 N=7
Increase in Costs
4
29%
Decrease Prices
Decreased Demand
Other
CEOutlook: Utahâ&#x20AC;&#x2122;s Quarterly Economic Survey of Business Executives
EXECUTIVES OPTIMISTIC THAT HEADCOUNT WILL 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? 9%
10%
34%
3%
6%
5%
8%
3%
2%
36% 43%
41% 48%
45%
45%
56%
45%
57%
54%
53%
47%
48%
48%
41%
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
2019-Q3 N=41
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:
Trade war and women’s wage gap are both of concern. Overall, I think the quality of our governance and the strength of our business community and the possibility of a robust inland port are positives for the Utah economy. The following would have a negative impact on the Utah economy (unless we can make changes to improve these areas of concern): homelessness, affordability of housing, potential revisions to the state sales tax and/or income tax structure, air quality. Positive factors include low unemployment. As homes get more expensive, starter homes are less affordable and families may look to apartments or condos. This could have a negative affect as the economy grows and prices increase. Families will have less discretionary income to spend. Also labor shortages are occurring in certain industries and this will drive up prices. 2019 - Quarter 3
Decrease in consumer confidence. Executive-level uncertainty. Impacts of trade policy on U.S. economy. Negative impacts: scarcity of technical talent, work ethic of certain demographics. Positive impacts: completion of I-15 construction in Lehi, airport expansion, prospect of inland port, comparatively low cost of higher education in Utah, and innovation-oriented programs on our college campuses. Continuing pressure on housing market and credit market, slumping stock market, unsettled political environment in the US and uncertainty with foreign trade relationships.
5
KEY COMMENTS
The following two questions change quarterly to reflect current economic conditions:
FROM EXECUTIVES ON UTAH’S ECONOMY Q9- Which word best characterizes your view of the economy?
11%
3%
50%
37%
U.S.
Fragile
5%
44%
49%
2%
UTAH
Stable
Robust
Other
Trade Uncertainty
Stock Market Fluctuations
Housing (Affordability and Shortage
13%
33%
18%
38%
Q10- Which economic risk causes you the most consternation?
Labor Shortages
Other
Below are quotes from executives that chose “Other”.
• Regulatory • Regulation • Lack of rational immigration policy that would help address labor shortages and keep families together • Labor is also significant
6
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
KEY ECONOMIC INDICATORS FOR BUSINESS LEADERS QUARTER 2 AVERAGES
UTAH’S EMPLOYMENT SUMMARY
The Utah Department of Workforce Services reported, as of August 2019, that Utah’s employment grew by an estimated 3.0 percent, adding 45,900 jobs to the economy since August 2018. Utah’s current employment level registers 1,562,500. July’s year-over job growth is revised up one-tenth of a percentage point to 3.7 percent. August’s seasonally-adjusted unemployment rate held at 2.8 percent for a third month. Approximately 45,100 Utahns were unemployed and actively seeking work during August. The national unemployment rate is also unchanged at 3.7 percent. “The Utah economy continues functioning as a strong societal support,” reported Mark Knold, Senior Economist at the Department of Workforce Services. “Job growth remains as one of the nation’s best, and that growth’s scope is extensive across the industrial spectrum. One of the few areas not increasing employment is brick-and-mortar retail establishments due to the rise of e-commerce.” Utah’s private sector employment grew by 3.4 percent year-over with the addition of 43,400 positions. All 10 of the private sector major industry groups measured in the establishment survey posted net job increases in August.
BUSINESS LEADER SENTIMENT
The Salt Lake Chamber’s CEOutlook Confidence Index decreased from 60.1 to 53.3 for 2019-Q3, as a growing number of executives believe economic conditions will remain the same 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 was unchanged at 43 in the second quarter of 2019, declined to a reading of 34 in the third quarter (a reading of more than 50 points reflects more positive than negative responses). This is the lowest reading since Q1 2009 when the Measure was at 30. “CEO Confidence declined to its lowest level in a decade,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Tariffs and trade issues, coupled with expectations of moderating global growth, are causing a heightened degree of uncertainty. As a result, more CEOs than last year say they have curtailed investment. In a separate poll of CEOs and CFOs (conducted in September), we found that a large majority believe the recent trade disputes will have a lasting impact on their business.” The MetLife & U.S. Chamber of Commerce Small Business Index reached an all time high of 70.7 this quarter. The Index, first published in Q2 2017, is up two points from 68.7 last quarter. This quarter’s rise is largely due to increased optimism in small business owners’ perceptions of their local economies. All other indicators remain largely unchanged at the national level. The third quarter survey was taken between June 28-July 25 and reflects small business sentiment at the time. Some of the key findings this quarter include: 56% of small businesses say their local economy is in good health, up five percentage points from last quarter. 58% feel the U.S. economy is in good health, on par with last quarter (59%). Year to year, the percentage of small businesses that feel optimistic about the U.S. economy has increased from 41% in Q3 2017, to 55% in Q3 2018, to 58% now. Two-thirds (66%) of small businesses continue to feel good about business health, including 41% who feel very good (slightly higher than last quarter’s 39%). The Business Roundtable’s 2019-Q3 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 waned likely due in part to growing geopolitical uncertainty, including U.S. trade policy and foreign retaliation, and slowing global economic growth. The CEO Economic Outlook Index decreased 10.3 points from last quarter to a value of 79.2, which falls below the Index’s historical average of 82.7. While the lower index reading suggests some moderation in the pace of economic growth going forward, the Index remains within growth territory. 2019 - Quarter 3
7
CONSUMER PRICES
The Zions Bank Wasatch Front Consumer Price Index (CPI) edged up 0.4% from July to August on a non-seasonally adjusted basis. Year over year, the Wasatch Front Consumer Price Index has grown 3.1%, while the national Consumer Price Index has increased 1.7% since August of last year. Higher prices in the recreation and transportation sectors drove moderate inflation in August, with recreation expenses increasing 9.3% due to a jump in the price of cable and satellite TV. Additionally, seasonal fluctuations in vehicle prices and the end of a year-long dip in insurance rates brought transportation prices up 0.9% from July. In a reversal of trend, the housing sector saw a dip in prices last month, falling 0.5% — the largest single-month drop since October 2017. The decline was due primarily to falling hotel and motel rates at the end of the summer travel season. In part because it’s the largest monthly expense for most Utahns, housing remains the primary driver of the annual increase in the price index. The housing sector is up 4.5% since August 2018, with apartment rental rates up slightly more, at 5.5% year over year.
CONSUMER ATTITUDE
The Zions Bank Utah Consumer Attitude Index increased 6.2 points to 119.3 in September. The yearover-year CAI dipped 4.7 points. In comparison, the national Consumer Confidence Index decreased 9.1 points to 125.1 this month. The Present Situation Index jumped up 6.9 points from August to September to 139.6. The increase is due to seasonal fluctuations and improving sentiment toward business conditions and job availability, as fewer Utahns are pessimistic about current economic conditions. In September, 4% of Utahns feel business conditions are bad, down 1% from August and just 1% above the lowest level recorded since Zions Bank began tracking consumer confidence in 2011. Additionally, 8% of Utahns feel jobs are hard to get, down from 9% in August. The Present Situation Index is 0.7 points lower than it was in September 2018. Compared to 12 months ago, Utahns are more uneasy about future business conditions. Currently, only 23% of Utahns feel business conditions will be better six months from now, a drop of 3% since last year. And 18% of Utahns feel business conditions will get worse in the next six months, an increase of 4% since September 2018. The Expectations Index has fallen 7.4 points year over year to the current level of 105.8. Even so, the Expectations Index rose 5.7 points from August to September. Utahns are notably more positive about their future incomes, with 40% of Utahns believing their income will increase in the next six months, the highest point since January 2018 and an increase of 4% since August.
8
CEOutlook: Utah’s Quarterly Economic Survey of Business Executives
If you are interested in sponsorship opportunities, please contact Brynn Murdock at bmurdock@slchamber.com To ensure that Utah’s business community is effective and compliant in their efforts to advance their interests, the Salt Lake Chamber is accepting registrations for its 2nd annual Government Affairs Bootcamp. As Utah’s leading business advocacy organization, this intensive two-day boot camp is designed for new and experienced government affairs professionals, company executives and public policy advocates to improve their efficacy and understanding of advocating in the state of Utah.
If you are interested in sponsorship opportunities, please contact Brynn Murdock at bmurdock@slchamber.com The Utah Economic Outlook and Policy Summit is the state’s premier economic forecasting and public policy event that is attended by over 1000 business, policy and academic thought leaders from across the state. The summit presents an unrivaled opportunity for attendees to gain insights on the future of Utah’s economy and the policy priorities for the upcoming legislative session.
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.
20192019 - Quarter - Quarter 3 3
9
9
RESPONDENT INDUSTRY MAKE UP SECTOR
NUMBER RESPONDING
QUARTERS
Q1
2018 Q2 Q3
Q4
Q1
2019 Q2 Q3
SAMPLE GOAL
3-YEAR CONTRIBUTION
Q4
11
10
9
11
10
13
13
11
25%
Manufacturing
5
3
4
6
3
4
4
6
14%
Professional & Business Services
5
5
4
5
5
0
6
5
12%
Retail Trade
4
2
3
3
5
7
4
3
8%
Education, Health Care & Social Services
2
2
1
3
5
4
6
3
8%
Construction
4
4
1
3
5
3
3
3
6%
Wholesale Trade
3
1
2
3
1
1
1
3
6%
Information
2
2
1
2
1
0
0
2
5%
Mining
2
2
2
2
1
1
1
2
4%
Arts, Entertainment, Recreation & Accommodation
2
2
1
2
2
0
2
2
4%
Transportation & Warehousing
1
1
1
2
1
5
0
2
4%
Other
1
0
2
1
0
1
1
1
3%
Utilities
1
1
1
1
1
1
1
1
>1%
Agriculture, Forestry, Fishing & Hunting
0
0
0
0
0
0
0
0
<1%
Finance, Insurance Real Estate, Rental & Leasing
*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 Jacey Skinner General Counsel and VP of Public Policy Salt Lake Chamber 801-364-3631 jskinner@slchamber.com
1010
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
CEOutlook: CEOutlook: Utah’s Utah’s Quarterly Quarterly Economic Economic Survey Survey of Business of Business Executives Executives