Better days ahead: 4 of 5 execs believe worst is over

  • Article by: JOHN J. OSLUND and PATRICK KENNEDY , Star Tribune staff writers
  • Updated: April 28, 2010 - 7:46 AM

Most executives at Minnesota's biggest companies believe the worst of the Great Recession is over.

Seventy-seven percent of the firms that responded to our annual survey expect their sales this year to be better than last year; only 5 percent expect sales to be worse.

The executives are also showing subtle but important shifts regarding their plans for hiring and capital expenditures -- both key indicators of a recovery.

Forty-two percent of the companies responding said they planned to increase hiring in the next 12 months. A year ago, just 17 percent planned to make additional hires.

Only 2 percent of respondents planned further job cuts.

David Vang, chairman of the Finance Department at the University of St. Thomas Opus School of Business, said most companies made their cuts in late 2008 and early 2009, concentrating the pain for workers. "They did it all at one time, like ripping a bandage off the wound,'' he said.

Meanwhile, 32 percent plan to increase capital expenditures, up from just 13 percent a year ago. Just 12 percent of responding companies planned to cut capital spending in 2010; a year ago, 43 percent planned cuts.

The plans for hiring came from a diverse group of companies, ranging from American Medical Systems Holdings, a manufacturer of medical devices for male and female incontinence, to TCF Financial to General Mills.

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 61 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.

Second-tier concerns included transportation, energy costs, privacy regulations, and the housing slump. Terrorism and climate change ranked last.

Among the highlights:

•More than half (54 percent) reported that the cost of health care had "little or no influence'' on their decision to hire employees, although 46 percent said health care costs had "some influence'' or "significant influence.''

•Two out of three companies said their access to credit was "about the same'' today as it was a year ago. Just 14 percent of companies reported they had less access to capital. That compares with 40 percent in last year's survey.

However, in some cases the companies reported that their access to credit came because of their own actions, not because of any greater willingness to lend by banks.

"We have more access because our financial strength has improved, not because lending has freed up,'' American Medical Systems said.

Government intervention

We got an earful 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?"

Forty-nine percent chose "lower taxes.''

Eighteen percent chose "overhaul health care.'' And 11 percent chose "increase access to capital.''

Twenty-two percent chose "other'' and filled in that blank with a variety of responses. Here's a sample:

Duluth electric utility Allete hoped for "reasonable regulatory outcomes."

Said General Mills: "The U.S. has the second-highest corporate tax rate in the world -- and Minnesota's high rate only adds to the competitive drag relative to the rest of the world. But health care is making U.S. companies less competitive.''

MakeMusic, which makes software programs for teaching and composing music, urged the government to increase educational spending. "Given our primary sales are to the music education market, it is critical to maintain school budgets,'' the company said.

Said medical device maker Synovis Life Technologies: "Improve the economy.''

TCF Financial, still chafing from last year's federal bank bailout, chose "lower taxes'' and added: "Stay out of our business.''

Health care debate

Final debate and passage of the health care bill occurred as our survey was ongoing and likely influenced some of the responses.

Nonetheless, Minnesota companies seem more convinced than ever that employer-provided health care plans will continue to be the national model. Seventy-three percent said they believe the current model, in which companies provide health care benefits as part of employee compensation, will remain viable.

Our question on high-deductible health care plans generated by far the most comments from Minnesota employers. Nearly three out of four respondents (73 percent) agreed that high-deductible health plans and health savings accounts (HSAs) "are helping to reduce health care costs."

These 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 a sampling of their comments:

Allete agrees that HSAs curb costs. "Higher deductibles encourage more self-monitoring of your health."

Medtronic: "More involvement by those who are insured.''

Winland Electronics: "Wellness plans reduce costs long-term.''

Others disagree.

Appliance Recycling called high-deductible plans "too expensive.''

Said Dolan Media: "System is broken. Takes more than this to fix it.''

Synovis said: "People are still not consumers with respect to health care spending choices. Insurance providers still have upper hand. Not enough incentive/pressure to reduce cost.''

More than half of respondents (56 percent) said health care reform was "not at all urgent'' while 43 percent called reform "very'' or "somewhat'' urgent.

Restaurant chain Granite City Food & Brewery fell in the former group. "Repeal the health care bill! Health care regulation and bill will add significant costs.''

General Mills struck a more nuanced tone: "We could do better than the current bill. Not enough cost control. Not enough payment reform. But addressing the problem of health care is urgent.''

Vang, of St. Thomas, said of the bill's passage last month: "Whether you agree with the health care bill or not, we are certainly a step closer to knowing what the rules are. And once that happens, businesses can plan.''

John J. Oslund • • 612-673-7206

Patrick Kennedy • • 612-673-7926

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