December 2002

Area Firms Expect Improved Business Conditions in the Local Economy during the first half of 2003

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The December 2002 Business Outlook Survey for the local economy indicates a rise in optimism about better economic conditions, according to area firms. The Business Outlook Index rose from 29 to 37 between September 2002 and December 2002 reflecting a turning point in business sentiment. The most recent survey found that 47 percent of reporting firms felt that future business conditions are likely to improve while 10 percent indicated that conditions are likely to get worse. In contrast, the September 2002 survey found that 39 percent of the reporting firms anticipated improved business conditions while 10 percent expected worsening conditions. 

The percentage of firms reporting anticipated expansion in future levels of activity rose from 31 percent to 41 percent between September 2002 and December 2002 representing a reversal of the downward trend that started since the first quarter of 2002. At the same time there was a drop in the proportion of firms indicating that their level of economic activity is likely to remain unchanged for the next six months.

The sales performance of firms in the last two quarters compared to the first two quarters of 2002 showed a slight improvement, though about one-fourth of the reporting firms indicated lower sales between the first and second six-month period of 2002. The percentage of firms reporting a reduction in sales dropped within the last three months from 30 percent in September 2002 to 25 percent in December 2002. The past six months was not as favorable for wage earners as employee compensation remained the same for 49 percent of respondents while there was a reduction in the percent of respondents reporting an increase in employee compensation from 55 percent to 48 percent between the September 2002 and December 2002.

Asked to identify the most serious challenges confronting businesses, the following represented the most cited in order of importance: uncertainty of future economic performance, competition from other businesses, health care expenses for employees and cost of labor.

Currently, businesses in construction, communications and information, and wholesale and retail trade are the most optimistic about future business conditions in the local economy, while firms in personal services and professional and scientific services are the least optimistic about future economic conditions. With regard to future activity at the firm level, firms in the financial, manufacturing and construction sectors reported the strongest inclination for expanded activity over the next six months (see Table 2).