Survey: Midsized businesses optimistic but waiting for action

Gary Keith

Nick Lambrow

Seventy percent of midsized companies expect the economy to improve in the next six months, according to a first-quarter multi-state survey from M&T Bank.

Here in Delaware, the agricultural segment is growing in Kent and Sussex counties, developers have projects in their pipelines, lending activity is strong and the DE Sports Turf project is expected to spur the Kent County economy, said M&T Regional President for Delaware Nick Lambrow.

Lambrow said the agricultural, medical services and professional services sectors are growing, and hospitality had a good year last year and a good first quarter.

M&T’s first-quarter survey showed many midsized companies are looking forward to potential changes in economic policy under President Trump’s administration, but business fundamentals are mostly unchanged so far.

“¢ 26 percent said they plan to increase hiring – slightly down from a year earlier.
“¢ 42 percent expect to increase capital expenditures.
“¢ 45 percent expect to increase sales.
“¢ 23 percent expect their inventory levels to increase; 12 percent expect a decrease.

In the first quarter of 2016, only 35 percent said they expect higher unit sales, but 45 percent said they expected higher sales this year.

“As much as they are optimistic that things are going to be moving in a direction they would like, in the short term, they’re being cautious in their hiring,” said M&T Regional Economist Gary Keith.

“The big issue now is going to be follow through,” Keith said. “We’ve sort of had the “˜ah-ha’ moment with the election, but the proof is going to be in the pudding. Are we going to see a tax situation that helps business? Are we going to see regulatory release? Right now, it’s good will, but that can only take us so far. Stay tuned, I guess, is the message.”

Many owners are waiting to see what will replace the Affordable Care Act, Keith said, and most are willing to reduce hiring and payroll expenses to offset any higher healthcare costs.

“As we watch what unfolds in the new GOP plan, I think businesses are going to be very aware of what it means for them,” he said. To stay revenue-neutral, they will look for savings elsewhere, he said.

The enthusiasm tied to the new administration appears to be closely related to expected changes in taxes and regulation, Keith said. Taxes, regulation and healthcare costs – top challenges for middle market firms – are all stated priorities of the Trump administration. The 70 percent who believe the economy will accelerate in the next sixth months is triple the number who said they believed that this time last year.

Among respondents in commercial real estate, 67 percent said they expect the economy to accelerate over the next six months, and 11 percent said they expect it to deteriorate. About 35 percent said they expect their occupancy rates to rise, while 16 percent said they expect lower occupancy.

Lambrow said Delaware companies still have concerns about health-care costs and the limited employee talent pool as the region moves closer to full employment, but the bank is now seeing companies move on plans that had been on the back burner.