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Star Tribune 100

Minnesota companies stay upbeat

  • Article by: JOHN J. OSLUND AND PATRICK KENNEDY
  • Star Tribune staff writers
  • April 20, 2008 - 11:17 AM

Dire economic news has caught the attention of Minnesota's biggest companies, but has not yet dampened their spirits.

According to our annual Star Tribune 100 survey, big Minnesota companies remain confident about their prospects for 2008. Most said they plan to hire more workers in the next 12 months, and two out of five plan to boost capital expenditures.

Hiring and retaining workers and the health of the economy are the two most-pressing issues facing the largest companies. Although hiring has long been the top concern in our surveys, a year of worrisome headlines about bad loans, high oil prices and tightfisted consumers has elevated the economy into the top tier of the corporate agenda as well. Ø

"For as dour as the outlook is, it looks like they are beginning to spend on capital and hiring," said Michael Swanson, senior economist at Wells Fargo & Co. "Good strong companies will always find money to borrow."

Seven out of 10 companies responding to our survey reported that they enjoyed "about the same" access to capital as they did a year ago. One in four said that capital was harder to obtain.

Jack Militello, professor of management at the University of St. Thomas, said he was not surprised by the survey findings. "When things are going poorly, that's the time to invest," he said.

The mail survey was conducted by Star Tribune researchers in February and March, and was sent to 141 large, publicly held Minnesota-based companies. Sixty responded, for a response rate of about 43 percent.

Education, global competition, energy costs, health care benefits and federal tax rates ranked as first-tier concerns, along with wage rates, state taxes, increased regulatory enforcement and global competition.

Second-priority concerns included transportation, privacy regulations, terrorism and affordable housing. Climate change ranked lowest on the priority list for most companies.

Among the highlights:

• Fifty-four percent of responding companies said they'll increase head count in 2008. That's down from 58 percent in 2007 and 65 percent in 2006. Only 2 percent said they will cut jobs in 2008.

• Forty-one percent said they plan to increase capital spending this year, while 47 percent said that spending would remain steady. Those numbers are about the same as last year.

• About four out of five companies said higher energy prices have affected their operations. Of those, 8 percent said energy prices have had "profound" effects on their businesses. But 22 percent of responding companies reported "little or no effect" on business.

• About 65 percent said they believe that oil prices will remain at about their current levels ($100 per barrel at the time of the survey), while 33 percent expect higher prices a year from now. This year's responses reflect more pessimism about energy prices, with one in three companies expecting prices to rise, compared with one in five a year ago.

"We aren't trying to predict oil prices," Hutchinson Technology said. The company makes suspension assemblies for disk drives.

Possis Medical said it expects oil prices to remain "above $85 a barrel for several years at a minimum."

The 'R' word

Responding companies were split concerning the effects of slower consumer spending. Fifty-three percent said tighter consumer spending will affect their businesses. Of those, 7 percent said they expect that the effects will be "profound." Meanwhile, 47 percent said tighter consumer spending will have "little or no effect."

"While our [businesses are] recession-resistant, they are not recession-proof," said Patterson Companies, which makes products for the dental and veterinary markets.

The gas tax

Our survey was mailed before the Minnesota Legislature raised the state gasoline tax and overrode a veto by Gov. Tim Pawlenty to implement it.

Regardless, most responding companies were cool to the idea of raising Minnesota's fuel tax to fund highways and transit. Fifty-three percent wanted to keep the gas tax where it was. Meanwhile, 20 percent favored raising the tax, and 27 percent wanted it lowered.

Hutchinson Technology, which favored keeping the gas tax where it was, said "spend the gas tax revenue only on roads and highways."

Insignia Systems, which favored a raise in the levy, said additional funds "are needed for roads and transportation, which will benefit business."

Minnesota's gas tax was 20 cents per gallon, and had not been raised since 1988. On April 1, it rose 2 cents per gallon and will rise 6.5 cents per gallon more by 2012.

Health care conundrum

Companies seem more convinced now than in years past that employer-provided health care plans will continue to be the national model.

Four out of five responding companies said they believe the current model, in which companies provide health care benefits as part of employee compensation, will remain viable. In 2006, 40 percent said the employer model was doomed.

"It has to [survive]," Patterson Companies commented. "Government intervention will only screw it up even more than it has already."

Militello, who is also director of the health care MBA program at the University of St. Thomas, agrees. "Medicare is struggling," he said. The great fear among companies was that Medicare would crowd out private-sector insurers, leaving a bureaucracy burdened by regulations and ballooning costs.

But in recent years, "firms have been innovative in providing health care," Militello said, citing the emergence of health savings accounts and other types of plans that afford more choice to the patient/customer.

"Consumer-based health care plans seem to be taking hold," Militello said, "especially among consumers of a certain age" -- namely younger ones. And as companies invest in consumer-based plans, the wellness features that are typically built into them will begin to show returns in the form of lower costs, he said.

The trend toward consumer-based health care plans may account for the year-to-year change in response to our last survey question: "Is your company considering significant changes to employee health care benefits?"

This year, 82 percent answered "no." A year ago when we asked the same question, 72 percent said "yes."

Big companies that were able to change their health care plans have moved aggressively to do so, Militello said.

oslund@startribune.com • 612-673-7206 pkennedy@startribune.com • 612-673-7926

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