fedgazette

Business leaders pessimistic for 2002

Results of November 2001 business outlook poll

Toby Madden - Regional Economist

Published January 1, 2002  |  January 2002 issue

Ninth District business leaders expect the national and district economy to weaken in 2002. Most of the respondents to the November business outlook poll are pessimistic about their community's economy. Leaders from the Dakotas are the most optimistic, while respondents from northwestern Wisconsin are the most negative. Results indicate modest increases in wages and prices. Most retailers expect price increases, while agriculture respondents foresee price decreases.

This year's respondents anticipate stagnant national economic activity and lower inflation in 2002. Fifty-nine percent of the 323 respondents expect zero or negative growth compared with only 4 percent last year. However, several respondents commented that they look for an economic expansion during the second half of the year. A quarter of respondents predict prices will rise by only 1 percent, while 40 percent expect the consumer price index to hover around 2 percent.

Business leaders are pessimistic about the economic prospects for their communities in 2002; 56 percent this year compared with 27 percent a year ago. They expect business investment, employment, consumer spending and housing starts to be lower in 2002 than in 2001. Wages are predicted to grow slowly: Three of four leaders foresee wage hikes to stay in the 2 percent to 3 percent range, while 21 percent expect wage increases of about 1 percent. Respondents from the Dakotas were the most optimistic, while leaders from Minneapolis-St. Paul and northwestern Wisconsin have the gloomiest outlook.

While poll respondents are pessimistic about their local and national economies, they are somewhat more upbeat about their own operations. They believe company sales revenue and prices will be about par with last year. Most retailers expect price increases, while agriculture respondents anticipate price decreases. Meanwhile, many business leaders from all sectors may consider reducing employment and investment in 2002. On the bright side, leaders don't anticipate problems finding workers, complying with government regulations, implementing new technology or securing nonlabor inputs as they did in last year's survey.

While most business leaders expect minimal or no impact on company profits from the Sept. 11 tragedy, 36 percent anticipate a significant or severe impact on profits this year. Most of those reduced profits are attributed to increased insurance expense (60 percent), business travel (45 percent), transportation (35 percent) and security costs (22 percent).

Business leaders claim productivity gains at their companies in 2001. About one in three leaders reported productivity growth of 1 percent to 2 percent, nearly a quarter saw productivity increase from 3 percent to 5 percent, and 10 percent enjoyed productivity gains of over 5 percent. However, 9 percent saw productivity declines in 2001 compared with 3 percent in 2000. Internet sales continue to creep up. In this year's survey, 35 percent of the respondents reported some sales over the Internet compared with 29 percent and 24 percent of respondents in last year's survey and 1999's survey, respectively.

For complete business poll results, go to Business Poll. [xls]

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