Mike Stafford: CEOs See Sales Improving; Hiring And Investing Slower

If Arkansas businesses were cars, most have been in the “shop” for months now. Well, it’s starting to look like many of them will be taking to the streets the first half of 2014.

The job market for Arkansas remains stalled as continued reports from the Bureau of Labor Statistics indicate. However, business leaders in Arkansas are somewhat optimistic about the first half of 2014 according to a survey of more than 100 CEOs, Presidents, and other Arkansas leaders surveyed by CEG Partners.

Overall, 64 percent of Arkansas business leaders say that their companies expect increased sales revenues during the first six months of the New Year. Specifically, 56 percent said they expect slight increases with 8 percent expecting significant increases. While 16 percent expect no change, 15 percent expect a slight decrease and 5 percent expect a significant decrease. Excluding Health Care from these numbers, the 64 percent increases to 73 percent expecting increased Revenues in the first half of 2014.

From an industry perspective the most significant differences in sales revenue expectations occur in Health Care and Pharmaceuticals. Those business leaders are concerned about the future as no one expects a significant increase of sales revenues into the first half of 2014. Only 24 percent expect a slight increase and 64 percent expect a slight or significant decrease in revenues.

Ten years ago, health care spending was growing at about 5 percent a year. Beginning in 2007, per-capita health care spending slowed to 1.8 percent annually. Since 2010, the annual increase has slipped to 1.3 percent. Generally, economists agree that a sluggish economy is the main reason that health care spending growth has slowed so dramatically in the last five years. Indeed, the nonprofit Kaiser Family Foundation, a research group, estimates that the weak economy accounts for as much as seventy-five percent of the slowdown in health care spending growth.

In other sectors, including Manufacturing, Technology, Finance, and Utilities, 73 percent expect increased Revenues, but 72 percent report being able to meet increased demand with no, or only slight, increases in capital investments. Arkansas business leaders have managed through hard times and have the capacity to meet demand. Does this bode well for increased profitability?

The theme of Revenue Growth continues with no change or a decrease in employees expected by 60 percent of our business leaders who responded. With next quarter being a time of performance appraisals and bonuses typically being paid out, this is an interesting finding. Again, it appears Arkansas business leaders are well positioned to seize profit opportunities in 2014.

When we look across all sectors, it does appear we are seeing cautious optimism at work here. For every company reporting overall economic conditions expected to improve, there’s likely another company expecting things to get worse. So while we can expect to see economic improvements in the first half of 2014, don’t expect anything near a full on recovery.

Asked what else is impacting your company’s economic growth, the most common reported theme by our surveyed business leaders was concerning regulation. One respondent commented:

“Regulation and compliance is the fastest growing area of our business.”

That’s not going to help matters going forward and does a lot to explain why most Arkansas business leaders are not quick to invest in hiring new employees.

So what does all this mean for businesses in Arkansas? Our clients at CEG Partners have been doing two things over the last several months;

#1 they have re-engineered their key processes that bring the most value to their customers. This streamlined effect helps them be more competitive on price while improving customer service.

#2 they have upgraded talent in key growth positions in their company. While many other businesses have let employee attrition play out to the point where they have had vacant jobs for months, our clients are taking this opportunity to find higher grade employees that will get them to the next level.

We are also seeing that more businesses are interested in our “try before you buy” program for employees where we hire them on our books and our clients evaluate them for months while they perform on the job.

So, while many businesses will continue to keep their “car” in the shop a while longer, others are tuned up, full of gas, and hitting the “road” to recovery.

Editor’s note: Mike Stafford with CEG Partners conducted the Business Leaders Confidence Survey from November 17-26, 2013 in conjunction with Talk Business and the Arkansas Chamber of Commerce. The survey asked questions of CEOs, Presidents, Plant Managers, and other business leaders in Arkansas across all major industries with more than 100 leaders responding.