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November 2005 — Vol. 83, No. 9

Executives think their firms will improve but economy won’t

Almost all expect higher energy costs from Hurricane Katrina

 

Connecticut business executives surveyed in September expected their own firm’s performance would remain moderately strong over the next few months despite the fact that they anticipated little improvement in the national and state economies. And the effects of Hurricane Katrina were expected to have a negative impact on businesses’ energy costs over the next three months. Those were some of the key findings of CBIA’s third-quarter 2005 economic survey of businesses.

One-third of the respondents expected their firms’ performance to improve over the next three months, while more than half (55%) expected conditions to remain stable. Only 11% expected conditions to worsen, down from 20% in the second quarter.

Nearly half (47%) of the respondents expected the national economy to weaken over the third quarter. That was up from 20% in the second quarter and only 4% a year earlier. Only 13% expected the economy to improve, down from 25% in the second quarter and 50% the prior year. And 41% expected the economy to remain stable, down from 55% in the second quarter.

Executives’ expectations were a little better for the state economy. Slightly more than a third of respondents (37%) expected Connecticut’s economy to weaken. That was up from 33% in the second quarter and 6% a year earlier. More than half (53%) expected the state economy to remain stable. That was up from 49% in the second quarter, but the same as the third quarter of 2004.

“This survey follows a similar trend as those conducted across the country in showing consumer and business confidence is waning due to the effects of Hurricane Katrina,” said Peter Gioia, CBIA economist. “But what these Connecticut executives are saying about the economy and what they are actually doing in their firms is very different. Many of these firms are hiring, and having steady performance in production, sales and productivity.”

According to the survey, one-quarter of business executives (25%) expected to increase the size of their workforce, down slightly from a year earlier (26%). Sixty-three percent expected their workforce to remain stable, up from 60% last quarter, but down slightly from the prior year. Only 13% expected to cut their workforce. That’s down from 14% in the second-quarter survey and up slightly (11%) from a year earlier.

“Hurricane Katrina knocked consumer and business confidence for a loop. But these hiring figures show that the ‘Katrina effect’ on local employment may be benign for the rest of 2005,” said Gioia.

He added that productivity, sales and production expectations continued to be strong. Forty percent of respondents expected improvements in productivity in the third quarter, the same as in the second quarter but up from 38% a year earlier. Fifty-four percent expected productivity to remain stable, and only 7% expected declines. Forty-two percent of the respondents also expected increases in productivity and sales, while 45% expected no change, and 12% expected declines.

Despite these positive indicators, almost all respondents (91%) said high energy prices caused by Hurricane Katrina would negatively affect their firms over the next three months.

“It’s clear that business executives are holding their own within their own firms, but the impact of Hurricane Katrina on fuel prices over the next few months will be a key indicator of future performance,” said Gioia.