Higher sales, hiring and spending signal robust business optimism

Friday, May 17, 2013

For the third consecutive year, most executives at Minnesota’s biggest public companies say the next 12 months are going to be strong for sales, hiring and capital investment.

“It’s great news that business seems cautiously optimistic in terms of hiring, and it seems consistent with other information that the economy has been growing and getting stronger," said David Vang, Ph.D., professor of finance at the University of St. Thomas. “A necessary condition of being an entrepreneur is that you have to be optimistic."

But even as the recovery gains traction and stock market indexes hit all time highs, two issues rank of highest concern: the economy and the ability to hire and retain workers.

“We still have quite a few people out of work,’’ said Chris Puto, Ph.D., dean of Opus College of Business at the University of St. Thomas. “There is no real wage inflation.’’

Vang agrees: “I think most companies think that wages and salaries are not going to be big [additional] costs for them.’’

That could change. “More baby boomers will be retiring and there is a shortage of people behind them,’’ Puto said. “I am predicting a boom in management development’’ to bring the younger workers up to speed.

Companies said they are more inclined to boost capital spending this year than at any time in the last four years, our survey shows. Companies invest in capital equipment for two reasons — to increase capacity or to increase efficiency, Puto said.

The fact that both spending and hiring plans are up suggests “they are increasing capacity,’’ said Puto.

Another reason spending is up? “They have been conserving their cash by many strategies including not buying new equipment in the past few years,’’ Vang said. “Now some of that equipment has to be replaced.’’

But corporate confidence is ­easily rattled. Last fall, when uncertainty about the election and the standoff in Congress over the fiscal cliff dominated the headlines, companies responded warily. More than 40 percent said they decreased spending and/or hiring during that period while another 27 percent put hiring and spending decisions on hold.

“The past two years we have had a lot of political uncertainty, especially surrounding the heath care act,’’ Vang said. “?‘What’s going to be my true cost per employee?’ Now I am getting a sense that businesspeople are assuming that the act will be here.’’

That gives them more certainty about the politics of health care — the Patient Protection and Affordable Care Act is here to stay — but uncertainty remains about what it’s going to cost.

Originally published: 05/17/2013, Star Tribune