Mid Sized Companies Generally Express Optimism About 2002

June 24, 2002
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GRAND RAPIDS — A just-released survey reveals a surprisingly upbeat outlook among mid-sized companies in the area, despite the double whammy of a weakened economy and the events of Sept. 11.

The majority of the 100 area firms surveyed about their expectations for 2002 and their level of confidence going forward appeared to share a keep-pushing-on attitude and the expectation of better days ahead.

What came through loud and clear was their level of optimism, said Alex Nesterenko, dean of Grand Valley State University’s School of Communications, who, along with his staff, conducted the survey on behalf of Plante & Moran and the Grand Rapids Business Journal in late October and early November.

“One thing that really became obvious to me was that the optimism was far greater than I would have guessed. That’s the single most important thing that stood out,” he said. “Another thing was the apparent belief that things would turn around in the first or second quarter.”

The survey targeted manufacturing and service companies in the $10 million- to $50 million-revenue range, with an emphasis on manufacturers. Retailers were not included.

Compared to 2001, 51 percent of respondents felt that 2002 would be better, with 36 percent predicting somewhat better and 15 percent predicting much better. In the “much better” group, 55 percent predicted a turnaround in the first quarter and 37 percent predicted a turnaround in the second quarter.

On the 2001-2002 comparison question, 19 percent expected next year would be about the same, and 21 percent anticipated it would be somewhat worse.

Among other key findings:

  • 62 percent of respondents said they were “holding steady” on employee hiring, 19 percent said they were hiring only for key positions, and 11 percent said they were actively hiring at this time.

  • 74 percent of respondents said consumer spending impacts their business or business planning, with 51 percent indicating it has a great impact and 23 percent indicating it has some impact.

  • 49 percent anticipated their capital expenditures would be about the same in 2002 as this year, while 25 percent expected capital expenditures would be somewhat higher and 15 percent expected they would be somewhat lower.

  • 42 percent said their key cost concerns over the next year were health care benefits, and 40 percent identified employee benefits as key cost concerns in the short term. Some 36 percent indicated raw material costs as a key concern.

“I think it’s important to note that when we asked what the key cost concerns were for the next 12 months, I would have thought health care would have been up there, but it is really big,” Nesterenko said.

He said the fact that 42 percent of respondents pointed to health care without being given specific categories from which to choose was a “very important sign.”

As to the impact of Sept. 11 on business, the study found that:

  • 43 percent said their order activity was about the same as it was before Sept. 11, and 41 percent said orders were lower.

  • 91 percent indicated their companies had neither made nor received requests for any business concessions from either customers or suppliers since Sept. 11.
  • 43 of 100 respondents said their current economic situation is not the result of Sept. 11, while 23 of 100 said about 10 percent of their present economic condition is tied to the events of Sept. 11.
  • 25 percent said their company would probably make a change in crisis planning as a result of Sept. 11, and 23 percent indicated likely security changes in the wake of those events. Both technology and software changes were indicated by 19 percent of respondents.
  • 57 percent said they saw a slight disruption in business immediately following the Sept. 11 attacks, while 25 percent saw no immediate disruption in business activity and 17 percent experienced a significant disruption.

Left to interpretation is the fact that 89 percent of respondents indicated employee morale had been impacted positively by the events of Sept. 11. Of the 89 percent, 57 percent indicated employee morale was impacted somewhat positively and 32 percent said very positively.

“I suspect that is a reflection of the fact that in many ways Sept. 11 has brought us all together and heightened our sense of patriotism,” said Christopher Montague, a partner at Plante & Moran.

Some 81 percent of those surveyed also indicated the events had had a positive impact on employee productivity, with 66 percent noting a somewhat positive impact and 15 percent noting a very positive impact. That, too, is left to interpretation.

Montague said the results were about what he expected based on his firm’s dealings with the mid-size business market. He thinks the survey clearly indicates businesses are generally feeling better about 2002 than 2001.

“Fifty-one percent say they feel that 2002 will be better and another 19 percent say it will at least be the same,” Montague said.

“Maybe another way of looking at it is that 70 percent of the people talked to feel this downturn, at a minimum, has kind of leveled out and over half think they’ll see some pretty strong signs of recovery next year.”

Montague said he was mildly surprised that the majority of those who see 2002 as being better think the turnaround will occur in the first or second quarter. His expectation is that a turnaround might come later in the year.

The survey results give mid-sized businesses a point of reference as to how other organizations similar in size feel about their current condition and what 2002 is going to bring, he added.

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