Survey: Economic Dog Days Ensue

Survey: Economic Dog Days Ensue

Business leaders anticipate weakening business conditions, but higher profit margins, in the months ahead.

Minnesota’s economy appears poised for modest growth even though its business leaders expect conditions globally, and to a lesser extent in Minnesota, to worsen during the quarter ending Sept. 30, according to TCB’s quarterly economic indicator study.

Of the 438 leaders across the state who responded to the late-June poll, 25 percent say they expect business conditions globally to weaken this quarter (the highest level since the first quarter of 2013); 50 percent expect them to stay the same, and only 25 percent expect them to improve (the lowest level since the fourth quarter of 2011). Minnesota’s business conditions are expected to weaken as well.

At press time, among the issues affecting business leader outlook:

  • Data from May indicating Minnesota is not creating jobs as fast as the rest of the nation and that this trend is expected to continue.
  • There had been little gain in average hourly earnings nationwide despite several quarters of decreasing unemployment rates.
  • Potential high-growth economies such as China’s remain depressed.
  • Greece was on the brink of dropping out of the European Union and defaulting on several billion dollars of debt, a situation that would increase uncertainty about doing business in Europe.

As a result of these and other factors, respondents indicated an overall “steady as she goes” approach to hiring and production levels, along with slight reductions in R&D spending and capital expenditures for the next three months.

In terms of capital expenditures, 11 percent say they plan to decrease spending during the current quarter (this represents an increase of 12 percent from the second quarter and 35 percent from a year ago), while 34 percent indicate they plan to increase capital expenditures (a drop of about 5 percent from last quarter and 11 percent from a year ago). The other 55 percent plan to maintain spending at current levels.

Similarly, 8 percent of respondents say they plan to decrease their R&D spending this quarter (up 17 percent from last quarter and 20 percent from a year ago). A whopping 75 percent plan to maintain spending where it is; this is the highest percent of “maintain” reported during the four years that this survey has been conducted. Only 17 percent say they plan to increase spending in this area—the lowest level of “increase” since the third quarter of 2011.

Finding qualified labor in Minnesota continues to be of high concern, with 47 percent of TCB survey respondents expecting it to become harder in the months ahead, 51 percent expecting it to remain the same and 3 percent expecting it to be easier.

Meanwhile, productivity and production levels are expected to remain about the same as last quarter. Revenue growth is expected to slow slightly. But operating profit margins are expected to strengthen: 36 percent of respondents expect them to increase this quarter, the highest optimism yet reported in this category. Only 50 percent expect them to remain the same as last quarter; 13.5 percent expect them to weaken.

Survey results are used to compile TCB’s Minnesota Economic Outlook Index, which decreased to 49.6 percent, slightly below the trailing 16-quarter average here. An index above 50 indicates healthy business growth; below signals slowing business growth. This indicator would have been higher if not for the high level of “it’s getting harder” responses to finding talented labor, as well as rising concerns about global and state economic issues. One of the survey’s questions asks, “What do you anticipate as your biggest business challenge in the next three months?” Finding qualified talent topped the list among the 321 written responses, with more starting to worry whether colleges are producing people worth hiring. Some other widespread concerns:

“Balancing capital growth needs with high state and federal tax burdens and growing health care costs.”

“Compliance with government imposed HR procedures.”

“Finding qualified salespeople … no one can talk face-to-face, they want to do it all with the computer.”

“Hyper-competitive markets with lower spending coming from customers.”

TCB’s survey also gives respondents a chance to mention other issues not on the survey. The most common comments had to do with what was described as an anti-business climate in the state legislature and governor’s office. “Minnesota is not a business-friendly state. It was the last of our regions to improve and it’s nowhere near as good as it was prior to the recession. We just added a plant out of state and all future growth will be out of state,” wrote one respondent. “We considered moving out of state when the business service tax was proposed and continually have the moving discussion as the tax burden for both individuals and corporations climb,” wrote another. “We need business leadership to take an active and public stance for their beliefs,” said a third. A few were more positive, providing comments such as, “Business activity in Minnesota seems to be growing slowly and steadily.”

Another question is whether those businesses that plan to expand will do so in Minnesota. This quarter, 57 percent indicated they would, down from 58 percent three months ago; 22 percent reported they won’t, the same as last quarter; and 21 percent answered “unknown.”

0815-EconomicDogDays_S02.jpgPercentage of respondents anticipating increases (Business Planning) or improvements (Business Conditions) in these areas during the second quarter of 2015; charts represent a diffusion index view: all responses for “increase” or “improve,” plus one-half of responses for “maintain” or “stay the same.” Above 50 is positive; below is negative.
Percent of 438 Minnesota businesses by industry that anticipate increases in these areas during the third quarter of 2015.
Percent of businesses by county that anticipate increases in these areas during the third quarter of 2015.

About the Survey

Since mid-2011, Twin Cities Business has sent more than 11,000 business leaders throughout the state the same set of questions every quarter, asking them about plans and expectations for the next three months. This issue’s survey, conducted at the end of June, provides insight about the third quarter ending Sept. 30.


Twin Cities Business conducts its survey quarterly to provide a look at business planning and sentiment among leaders across all industries in Minnesota. An email link to an online survey was sent to 12,832 Minnesota business leaders in late June, and reminder emails were 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 July 1, 438 businesses responded, resulting in a 3.4 percent net response rate. Of those who responded, 91 percent represented privately held businesses.

Related Stories