Hebert: Local Business Execs Show Little Optimism for Health of Economy

Puget Sound-area business executives are feeling pretty pessimistic about how the local economy will fare in 2009 according to the quarterly business confidence report by Hebert Research Inc. Heberts Business Confidence Index reached its lowest point in a decade during the third quarter of 2008. And among industry types construction executives tended to be the most pessimistic.

The Business Confidence Index (BCI) uses a 100-point scale. Scores above 50 generally indicate an expanding economy while scores under 50 indicate economic decline. The BCI has fallen precipitously in the past year to a decade low of 33 well under the historical mean score of 55.

The BCI is composed of four variables: The actual confidence ratings by executives expectations of change in revenues expectations of change in wages and current employment compared to last year. The revenue variable has taken the steepest fall going from 43 in the previous quarter to just 11 in the third quarter - the lowest in more than ten years.

Even though the revenue variable has reached a low point overall more companies expect increased revenues than those that expect a decrease (43 percent to 33 percent). However at 43 percent the number of firms that expect an increase in revenues is the smallest percentage in ten years. In the third quarter of last year 78 percent were expecting an increase in revenues.

On average companies now earning more than $5 million were more likely to expect decreased revenues next year while smaller companies expect an increase.

The variables regarding wages and the perceptions of confidence both reached lows for the decade while the employment variable sank to a five-year low.

The business confidence question required responding executives to give their perspective on how the health of the local economy will change in the next year on a 0 to 10 scale with 10 meaning it will greatly improve. Of the 175 business executives surveyed 18 percent believe that the local economy will improve in the next year while 57 percent expect it to deteriorate further. Spanning the last decade the percent of optimists and pessimists are at their lowest and highest points respectively.

Construction executives gave an average confidence rating of only 2.64 the lowest among industry types. This compared to an average rating of four by all the executives. Perhaps the construction executives pessimism is due in part to results of another question that asked business leaders about the expected change in total space that will be required for industrial manufacturing high-tech warehouse or retail for the next year. Only 10 percent expect an increase in needed space down by almost a half from the previous quarter.

Hebert Research conducts the Business Confidence Research quarterly on behalf of Key Bank. For more information contact Hebert Research at 424-643-1337.