Higher sales, hiring and spending signal robust business optimism

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.

Our 22nd annual Star Tribune 100 survey of Minnesota’s largest publicly held companies found:

• Eighty-six percent of the responding firms expect their 2013 sales to improve from last year’s. Another 13.5 percent expect sales will be about the same as 2012. None of those responding expect 2013 sales to be worse than last year’s.

• Sixty-three percent of companies said they plan to increase hiring in the next 12 months, up slightly from 57 percent in 2012. Meanwhile, 32 percent will keep head count the same. Just 5 percent plan cuts.

• Fifty-eight percent plan to increase capital expenditures, up from 51 percent in 2012. Just 2.5 percent of responding companies planned to cut spending in the coming year.

The plans for hiring and capital expenditures bode well because both are key indicators of a recovery.

“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, professor of finance at the University of St. Thomas. “A necessary condition of being an entrepreneur is that you have to be optimistic.’’

The Star Tribune conducted the survey in February and March. Of 114 publicly held, Minnesota-based companies that got surveys, 43 responded.

The plans for hiring came from a diverse group of companies, ranging from giant UnitedHealth Group to Rochester Medical, all-terrain vehicle makers Polaris and Arctic Cat, and manufacturer Graco.

Retail and services companies planning to hire include Granite City Food & Brewery and Select Comfort, maker of the Sleep Number bed.

Corporate concerns

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.

The A-list of corporate concerns also includes federal tax rates, health care bene­fits, energy costs, regulatory enforcement and state tax rates.

But wage rates? Not so much. Wages rank sixth on the public policy issues scale (Question 1), followed by education and transportation.

“We still have quite a few people out of work,’’ said Chris Puto, 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.

Second-tier corporate concerns include global competition, the Minnesota economy, the housing slump and privacy regu­lations. Terrorism and climate change ranked last.

Meanwhile, fears of the 2008-09 credit crisis seem to have faded. In the depths of the recession, access to credit dried up even for the most creditworthy companies. That problem seems to have gone away, at least for these larger, publicly held companies.

Eighty-two percent of companies said their access to credit is “about the same’’ today as it was a year ago, while 18 percent said they had more access to credit. None said they had less access to capital.

Capital spending

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.

Taxes

Ask a businessperson about raising taxes and the likely response is: “Please don’t.’’

That was the overwhelming corporate response to Gov. Mark Dayton’s proposal to expand the consumer sales tax to include clothing and consumer services (85 percent disagreed) and a since-abandoned plan to add a business-to-business services sales tax to legal services, advertising and accounting (94 percent disagreed).

A sampling of responses:

Electromed Inc.: “Additional taxes will only slow economic growth and ultimately reduce state revenues.”

General Mills: “The business-to-business tax is a bad idea. It would negatively impact both jobs and the Minnesota economy. The property tax rebate idea is also bad policy. It is essentially indefensible, because it is so disconnected from ability to pay.”

Health care debate

Sixty-nine percent of respondents agreed that high-deductible health plans and health savings accounts (HSAs) “are helping to reduce health care costs.” Thirty-one percent disagreed. That’s virtually the same response as last year.

High-deductible plans generally push health care decisions down to consumers by requiring them to pay for the first several thousand dollars in annual medical expenses beyond preventive care.

Here’s what companies had to say about high-deductible health plans.

General Mills: “While such plans can impact costs at the outset, we do not see them fundamentally impacting costs — by themselves — long term.”

HMN Financial: “HSAs have caused employees to spend health care dollars more wisely.’’

Life Time Fitness: “Health care costs continue to rise, though the new plans do drive personal responsibility around health.”

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