Some mid-sized companies in the Northeast are increasingly worried about the national economic outlook, but they are still somewhat optimistic about their own business expectations.
A new report from M&T Bank (NYSE: MTB) shows that 25 percent of middle-market companies expect the economy to decelerate over the next six months, while 23 percent expect the economy to improve. It marks the first time in four years that the share of middle-market companies with gloomy outlooks has surpassed the percentage that anticipate an uptick in the U.S. economy.
M&T defines mid-sized companies as those with sales ranging from $10 million to $500 million.
“There seems to be a wall of worry that businesses are encountering about everything out of their control,” said Gary Keith, vice president and regional economist at M&T Bank. “We’ve seen this in the past where businesses get concerned about the big picture, but say, ‘My business is looking solid and I’ll continue to run it as I have been.’ That’s the good news.”
But there are ongoing headwinds – the presidential election and potential interest rate hikes, at the moment – that play a role in what Keith calls a “sluggish” economy. He said the overall outlook is more positive than it was during the financial crisis of 2008, but challenges continue to test companies.
“I think we were more upbeat a year ago, thinking we were turning a corner. But there’s a sense that the corner gets farther out in front of us and there is a bit of discouragement with the sluggish pace of economic growth,” Keith said. "We’ve been confronting something on an annual basis, it seems, ever since the recession and there seems to be a bit of a fatigue factor in terms of the economic outlook.”
Released Sept. 15, M&T’s biannual survey is based on 288 responses from senior managers and owners of mid-sized businesses in M&T’s geographic footprint. The number of responses dropped from 488 received in the third quarter of 2015 and 467 received in the first quarter of 2016.
Keith said the bank isn't sure why the numbers dipped this time around.
According to the survey, hiring plans remain mostly unchanged from a year ago, with 25 percent of respondents saying they expect to hire in the next six months, down from 26 percent a year ago. Meanwhile, 32 percent of companies say they will increase capital spending, down from 40 percent a year ago.
In terms of compensation, 60 percent of respondents have plans to increase pay by at least 2 percent, while 17 percent plan to keep pay flat.
“I guess the good news element from the perspective of consumer spending is that there are plans to increase wages, which should be good for wage-earners,” Keith said. “If 60 percent are going to raise wages by 2 percent or more, that would be real wage growth in a low inflationary environment. We’ve seen the Buffalo area, for example, do pretty well on that measure and that’s where we start seeing real wage improvements, which makes everyone a little bit more able to spend, and that’s a positive.”
Buffalo-based M&T is the largest retail bank in Western New York. The latest survey took place online in July and August and included 223 middle-market companies and 65 commercial real estate investors.