[Detailed charts and graphs displaying full survey results appear at the bottom of this story. View past quarters' surveys here.]
 

The good news: Business leaders statewide are looking to increase headcount at a rate not seen in more than two years. The bad news: They say it’s gotten even harder to find good talent, while Minnesota’s unemployment rate dropped to 4.6 percent and the Twin Cities rate dropped to 4 percent—the lowest of any major metropolitan area in the nation.

Some 38 percent of business leaders from around the state plan to hire, while only 6 percent plan to cut jobs in the three months ending Sept. 30, according to Twin Cities Business’ late-June quarterly polling of more than 11,000 businesses. Compared with a year earlier, hiring is up 10 percent, while layoffs are down by 14 percent. Overall, it’s the best hiring outlook in Minnesota since the second quarter of 2012.

But when asked about finding qualified labor, 41 percent of the 467 business leaders who responded to the survey said they expect it to become harder this summer—the highest percentage of “more difficult” recorded in the 13 quarters in which Twin Cities Business has conducted this survey.

Meanwhile, employee productivity growth is showing signs of slowing. Only 46 percent of leaders say they expect it to increase this quarter—the lowest percentage in more than three years. More expect to maintain productivity levels, while only 2 percent expect decreases.

Survey results are used to compile TCB’s Minnesota Economic Outlook Index, which for the current quarter decreased slightly to 50.8. That’s still on par with the trailing 12-quarter average and down slightly from 51.8 for the second quarter. An index above 50 indicates economic expansion; below signals contraction. The most recent index would be higher if it were not for difficulties in finding talent and obtaining financing—though the latter continues to show improvement.

Only 13 percent of respondents say they think obtaining financing will become more difficult this quarter, down 25 percent from a year ago, while 12 percent expect it to become easier—up 22 percent from the third quarter of 2013 and the highest level of optimism expressed on this front since the third quarter of 2011.

Meanwhile, revenues and operating profit margins are expected to remain strong, if not increase slightly: 52 percent of respondents anticipate revenues will increase this quarter; 31 percent expect operating profits to increase. These numbers compare with trailing 12-quarter averages of 49 percent and 26 percent, respectively.

This is also the ninth consecutive quarter in which business leaders expect to increase investments in capital expenditures at a healthier clip than previously. Some 38 percent of business leaders plan to spend more in this area between July 1 and Sept. 30, while only 8 percent expect to cut spending here—the lowest level of reducing in more than two years.

Asked to respond to the question “What do you anticipate as your biggest challenge within the next three months?” 352 business leaders chimed in. Here, too, finding qualified labor showed up as the top concern. Particular skill sets mentioned included engineers, tool makers, construction, qualified drivers, financial representatives, “technical staff,” and machine operators. One summed up the challenge this way: “finding qualified employees who want to work with fewer staff members and produce at higher levels.”

Several also voiced concerns about current Minnesota leadership and policies as anti-business and driving wealth and jobs out of the state (see governor’s approval rating graphic, next page). Some, such as this respondent, linked those concerns to rising health care costs: “Health care is killing us, up 17 percent at renewal in June. That plus tax and minimum wage is moving me to move to offshore for the first time in the 14-year history of the company; will phase out one 70-person rural Minnesota operation over the next three years.”

Yet in typical Minnesota fashion, there were those who looked at the bright side, including this leader: “Gov. Dayton certainly has not been as bad for business as feared. Even with income tax increases and a terrible winter, Minnesota continues to have a strong business climate and is seen as a positive place to work and live. Wisconsin, on the other hand, is now 10th among Midwest states in job growth.”

Other Indicators

Other forward-looking surveys have found similar results to those of Twin Cities Business.

A survey of professional services firms found 52 percent think revenue will grow over the next 12 months, compared with 46 percent a year earlier. Conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development, the survey collected 241 responses in April and May.

In June, the MEDA Index, the state’s only index of economic activity devoted exclusively to entrepreneurs of color, reached 69.8, its highest level since it began in January 2011. It also found 30-day optimism to be at its highest level in two years. The index is based on a monthly survey of 25 to 35 Metropolitan Economic Development Association clients, who in recent months have indicated the highest levels of hiring since the survey started.

As Twin Cities Business hears hiring is getting harder and productivity growth is tapering off, employees are becoming more restless. Dale Carnegie Training’s quarterly Minnesota Pulse Survey for the period ending June 30 found that employees are becoming less ready to adjust to change, and the percentage of people who are satisfied with their employers’ culture and direction is slipping. Over the past year, the percentage of people feeling optimistic about their company’s future performance has slipped from 31 to 25.

Percentage of respondents anticipating increases (Business Planning) or improvements (Business Conditions) in these areas during the third quarter of 2013; 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.