Business Optimism Dips

Business Optimism Dips

After a strong start to the year, Minnesota executives enter the third quarter cautiously.

Business leaders from across Minnesota in late June expressed a 30 percent drop in overall optimism about business conditions here, according to Twin Cities Business’ most recent quarterly economic indicator survey.

While 33 percent of leaders polled said they believe that business conditions in Minnesota would improve during the third quarter (July through September), that level of optimism compares with 50 percent of respondents who entered the second quarter anticipating better times ahead.

The change in sentiment follows three consecutive quarters in which optimism had increased, and appears to be due primarily to factors beyond Minnesota, such as the European debt crisis. Of the 490 business leaders participating in the June survey, only 25 percent said they believe the national and global economies will improve during the third quarter—a 50 percent drop in optimism, compared with their outlook heading into the previous quarter.

“We thought this would be a good year financially,” one respondent wrote, “but with the euro crisis, things are not looking that good.” Others expressed similar thoughts, including this: “Economic conditions are weakening as a result of continuing global excessive government debt.”



  • New business filings in Minnesota through May were up for the fifth straight month compared with the previous year, according to Minnesota Secretary of State Mark Ritchie. Filings in the first five months of 2012 are up by 17 percent compared with one year ago. Meanwhile, 805 new businesses located outside the state incorporated here during that period, a 3.2 percent increase.
  • New-home sales in May rose at the fastest pace in two years, both across the country and here in Minnesota, according to the U.S. Commerce Department and the Minneapolis Area Association of Realtors.
  • Minnesota reported a 2 percent, or $90 million, increase in exports during the first quarter.
  • Based on data through May 28, layoffs in Minnesota have fallen to near pre-recession levels, a sign of better times to come for the job market, according to an economic analysis of Minnesota released June 30 by JPMorgan Chase and Company’s Jim Glassman.
  • Minnesota’s economy is just slightly lagging the performance of the national economy relative to real GDP trends over the past decade, according to a review of Commerce Department data by JPMorgan Chase’s Glassman.
  • Creighton University’s Business Conditions Index, which covers the nine-state Mid-America region, found Minnesota’s business conditions index slid to 58.6 in June, from 60.2 in May.

    A higher percentage of Minnesota businesses plan to maintain their levels of spending on capital expenditures (57 percent) and research and development (72 percent) this quarter, compared to investment plans during the second quarter.

    In turn, a smaller percentage expects to invest more: 32 percent of businesses plan to increase capital expenditures (down from 38 percent in the second quarter), while 20 percent plan to increase R&D spending (down from 28 percent last quarter). Planned investments in capital outlays and R&D had risen in each of the last three quarters.

    While overall business confidence in Minnesota is down compared with the preceding quarter, it is still stronger than one year ago at this time.

    The 33 percent of respondents who today believe business conditions in Minnesota will improve in the months ahead compare with only 25 percent who expressed such optimism heading into the third quarter of 2011. And the percentage of those who believe business conditions will worsen this summer (15 percent) is down from 32 percent who felt such pessimism a year ago at this time.

    Also compared with one year ago, more business leaders today plan to increase R&D spending (20 percent versus 15 percent in the third quarter of 2011); production levels (44 percent versus 39 percent); and full-time employee counts (35 percent versus 33 percent). (See table on page 28 for Minnesota industries most actively hiring this quarter.) Meanwhile, anticipated layoffs remain low, with 7 percent of respondents expecting to reduce full-time headcount in the next couple of months.

    Finding qualified talent remains a concern, with 29 percent of respondents expecting it to become more difficult in the months ahead—the same percentage who reported this concern heading into the second quarter. Only 6 percent of respondents believe finding qualified talent will be easier during the third quarter.

    Jobs that employers are having the greatest difficulty filling with qualified employees this summer are, with toughest-to-fill first: precision production, part-time, professional/management, information technology, and temporary/contract, according to Grow Minnesota, a subsidiary of the Minnesota Chamber of Commerce that focuses on job retention and creation.

    Grow Minnesota has gathered input from 284 one-on-one business retention visits done across the state since October 2011. It found that 45 percent of businesses plan to increase their workforce in the year ahead, compared with 40 percent that shared such plans during the previous year. In contrast, Twin Cities Business’ last four quarterly surveys found an average of 35 percent of respondents who plan to increase their workforce in the months ahead.

    Grow Minnesota also found that more than 70 percent of leaders willing to share such information expect sales will increase this year (compared with an average of 50 percent recorded through the last four quarterly Twin Cities Business surveys), while 60 percent forecast increased profitability.

    Minnesota industries that expect profitability to grow the most, according to Twin Cities Business’ survey, are banking and finance (41 percent of businesses responding from this sector expect an increase); marketing/advertising/communications (41 percent); architectural/engineering (33 percent); and education and training (29 percent).

    Industries with the highest percentage of leaders saying they’ll see a drop in operating profit margins this quarter are utilities (50 percent); transportation (43 percent); wholesale trade (37 percent); and community/nonprofits (33 percent).


    Twin Cities Business conducts this survey quarterly to provide a look at business planning and sentiment among leaders across all industries in Minnesota. It is the only survey of its kind. Tables on pages 28 and 29 provide more information.

    An email link to an online survey was sent to 16,126 Minnesota business leaders in mid-June, and a reminder email was sent the following week to those who had not yet completed the survey. The Minnesota Chamber of Commerce provided some of the email addresses used in this outreach. As of June 28, 490 businesses responded, resulting in a 3 percent net response rate. Of those who responded, 87 percent represented privately held businesses and 13 percent publicly traded ones.

    Minnesota Business Management Index
    Percentage of respondents anticipating increases in these areas during the first quarter. Diffusion index view: all responses for “increase,” plus one-half responses for “maintain.”

    Minnesota Business Conditions Index
    Percentage of respondents anticipating increases in these areas during the first quarter. Diffusion index view: all responses for “increase,” plus one-half responses for “maintain.”


    Percent of 490 Minnesota Businesses—by industry—that anticpate the following changes during the third quarter of 2012

    Outlook by county during the third quarter of 2012


    The tables above provide a diffusion-index view: overall responses for ”increase,” plus one-half of responses for ”maintain” from 490 business leaders surveyed in late June 2012.