Watchful and wary, Minnesota companies ride out an economic 'perfect storm.'
The numbing effects of recession are foremost in the minds of executives at Minnesota's biggest companies. More than a year into the current downturn, the economy, their employees and health care -- in that order -- are the front-burner issues, according to our annual Star Tribune 100 survey of the largest Minnesota-based public companies.
Hiring and retaining workers has long been the top concern in past surveys. But a year's worth of apocalyptic headlines about the credit crisis, high oil prices and government bailouts put economy at the top of the corporate agenda.
The companies also remain guarded about their prospects for 2009. Although 61 percent said they plan to keep staffing levels "about the same'' in the next 12 months, 43 percent said they plan to cut capital spending.
\That's consistent with national trends. "We are seeing a hefty decline in capital spending as businesses are still trying to keep up with this weaker [economic] outlook,'' said Scott Anderson, vice president and senior economist at Wells Fargo & Co.
Companies said they've overwhelmingly felt the effects of slower consumer spending. Some 40 percent reported "significant effects'' and another 39 percent reported "some effects.''
Of course, tightfisted consumers and corporate belt tightening go hand-in-hand.
Dan Laufenberg, senior economist at Ameriprise Financial, said firms are not hiring and they are not spending "because they are not convinced the business will be there.''
FSI International Inc., which makes equipment for the production of integrated circuits, said "the consumer spending decrease had a significant impact on microelectronics spending.''
But where some see despair in the survey results, others see hope. Said Christopher Puto, dean of the University of St. Thomas Opus College of Business: '"We've had the economic equivalent of a perfect storm ... a pretty substantial shock. But we are holding our own up here. I am encouraged when I see substantial numbers of companies not cutting their workforces. I feel things are stabilizing and the fundamental forces at play in this region have provided a cushion.''
The mail survey was conducted by Star Tribune researchers in February and March and was sent to 130 large, publicly held Minnesota-based companies.
In addition to the economy, the 54 companies that responded checked off education, global competition, health-care benefits and federal tax rates as top concerns, along with wage rates, state taxes, increased regulatory enforcement and global competition.
"The U.S. economy is more of a concern than the Minnesota economy,'' pointed out Tom Stinson, Minnesota state economist. "The U.S. is what they are really paying attention to.''
Second-tier concerns included transportation, energy costs, privacy regulations, the housing slump and terrorism. Climate change ranked lowest on the priority list for most companies.
Among the highlights:
•Three of five responding companies plan to keep employee headcount "about the same'' in the next 12 months; 22 percent said they'll decrease staff, while another 17 percent said they'll be hiring. Lighting and hardware maker Fastenal Co. plans to keep employment "about the same'' but added: "This answer would change if the economic environment changes.''
•Just 13 percent said they plan to increase capital spending this year, down from 41 percent a year ago. Meanwhile, 43 percent plan capital spending cuts, while 44 percent will hold spending steady.
•More than half (56 percent) reported they enjoyed "about the same" access to capital as they did a year ago. But another 40 percent said they had less access. Alliant Techsystems noted it had about the same access but capital was "more expensive.''
•About three out of four companies said higher energy prices have affected operations. Of those, 13 percent said energy prices have had "profound" effects on their businesses. But 26 percent of responding companies reported "little or no effect" on business.
•A majority, 56 percent, believe oil prices will remain at about their current levels ($50 per barrel) while 42 percent expect higher prices a year from now.
When we asked what's the "single most important thing that federal and state government can do to help your company grow and add more employees?'' we got an earful.
Not surprisingly, 64 percent of respondents said "lower taxes.'' Another 27 percent said fix the housing slump, while 9 percent chose "increase government spending."
But the comments are perhaps more illuminating.
St. Jude Medical Inc.: "We feel all three would provide some level of aid to the economy.''
FSI International Inc.: "Restored consumer confidence will be a key driver that will require all three, plus time.''
Graco Inc.: "Address the crisis at financial institutions.''
Northern Technologies International Corp.: "Increase spending and lower taxes, invest in green energy spending."
Synovis Life Technologies Inc.: "Restore confidence in U.S. economy. Fundamentals are not as bad as we are led to believe.''
St. Thomas' Puto found the responses "intriguing and not discouraging.''
Business is naturally worried that government would try to balance the budget on the backs of businesses, he said. There is "still significant uncertainty -- not unease -- but uncertainty about how [President] Obama is going to function as president.''
He said the responses to the oil questions suggest "that these companies have adapted ... that the volatility in oil prices is not affecting these businesses as much as we thought.''
Health care debate
Minnesota companies seem more convinced that employer-provided health care plans will continue to be the national model, notwithstanding efforts by the Obama administration and Congress to pass sweeping health care reforms.
Four out of five respondents said they believe the current model, in which companies provide health care benefits as part of employee compensation, will remain viable. General Mills Inc., which voted with the majority, added: "But only if we aggressively pursue payment and delivery reform.''
Said Puto: "This is saying that good management realizes there is a societal benefit to providing health care coverage, but they don't want to be on the hook for the whole thing.''
Our question on high-deductible health care plans generated by far the most comments from Minnesota employers. Nearly two-thirds of respondents (64 percent) agreed that high-deductible health plans "are helping to reduce health care costs.'' The rest disagreed. The 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.
Fourteen firms offered comments. Here's a sampling:
Apogee Enterprises Inc.: "We have had such a plan and our costs are well below industry, and we have full funding of preventative care with no limit. It works for the employee!''
Rimage Corp.: "Anytime you can make something more transparent ... consumers will make cost-conscious decisions.''
Winland Electronics Inc.: "People are less apt to see the doctor for minor items if they are paying the bill.''
Delphax Technologies Inc.: "These plans are moving healthier and younger folks out of the pool, leaving [the] rest to pick up the tab. It is just a timing imbalance, not an expense-reduction solution.''
SurModics Inc.: "Not broadly adapted yet.''
Wireless Ronin Technologies Inc.: "By raising the deductibles the plan has only shifted the burden of the cost from the employers to the employee, while the overall costs to provide the same level of health benefits continues to rise.''