Lehigh Valley business sentiment highest since 2007

The Greater Lehigh Valley Chamber of Commerce -Kamran Afshar survey of the Valley businesses is a quarterly survey that has been conducted since 1998. In April 2018. The business sentiment index in the Valley rose to its highest level since 2007!

The index of hiring plans for the next 6 months with an increase of 6.9% over its January 2018 level recorded the largest increase among indicators in the model. Employment in the last 6 months also recorded a significant increase in the April survey. The purchasing indices, however, both showed small increases in 2018, while remaining below their April 2017 levels.

The index of hiring plans for the next 6 months spiked to 69.9 in April, its highest level since July of 1999! This index is now at the top of the range which is historically associated with rapid employment growth in the Valley.

The index of actual hiring over the last 6 months also recorded a significant increase in April 2018, exceeding its April 2017 level by 7.1%. This index is also in range associated with rapid employment growth in the Valley.

Valley businesses participating in the survey have reduced their layoff rates to below their boom years level during 2004 through 2006. A data point which is directly supported by the decline in the number of initial unemployment claims which has now dropped to tight labor market level for the Valley.

The index for actual purchases over the last 6 months while increasing during the last two quarters, is still below its last year’s level and is trending flat. The rapid increase in purchasing during the first 2 quarters of last year appears to have been mostly due to post election enthusiasm. Many of the same businesses have cut back their rate of expansion.

One of the surprising results of our surveys is the observation that the percent of local businesses which had reported increases in their revenues dropped well below its January 2018 level and is at a statistical tie with its April 2017.  Also, of concern is the drop of the index of expected future revenues to below its April 2017 level.

The lower corporate and personal income taxes have moved from the roam of expectation to reality. The trillion-dollar infrastructure bill or anything resembling that is still an expectation. And while we will see increases in consumer and corporate expenditures, at least, through the middle of summer, its sustainability beyond that is being debated. It is however, very clear that the current tax breaks, will cause higher deficits, at the very least, early on. Since the labor market is at full employment level, and deficit is rising rapidly, inflation and higher interest rates are not far behind.

Lehigh Valley business sentiment rose in January after dropping for 3 quarters in a row

The Greater Lehigh Valley Chamber of Commerce -Kamran Afshar survey of the Valley businesses is a quarterly survey that has been collecting data since 1998. The January 2018 survey recorded the first increase in the index after dropping for 3 quarter in a row. However, due to the relatively small size of the January increase, the index is still below its January 2017 level, and it is still trending down.

The index of hiring for the last 6 months rose by a significant 5.3% since October, nevertheless, it is still below its January of 2017 level. Long-term data shows payroll employment in the Valley dropping since June of 2016. While the decline is very small and it looks more like standing still, the fact that its growth has stopped causes concern,  particularly since employment at the national level is continuing to grow.

And as usual, the smallest businesses participating in the survey were the most stable in terms of employment. Eight out of 10 businesses with less than 6 employees did neither hire, nor laid off any employees. While only 4 out of 10 companies with more than 100 employees neither hire, nor laid off employees over the last six months.

The index of plans for future hiring dropped slightly in January, however, this index is still trending up.

The index for actual purchasing over last 6 months rose by a significant 6.1% and despite that, it is still below where it was in January 2017. This index, similar to the overall index is still trending down. This is due to its drop in three quarters in a row.

Purchasing plans for the future also rose by a good 4.2% between October of last year and January of this year, however, it is still below its January 2017 level and is also trending down.

A lot of companies increased their expenditures after election based on expectations of rapid economic growth and had to then cut back to makeup for the overshot. With the tax reduction law in the books now, many of the participants in our survey are starting to test the waters again.

The percent of businesses participating in the survey which did report an increase in their revenues in the last 6 months increased in January.
I should add that this indicator was added to our list in 2014, so we don’t have real historical references for it. So our comparison is based on short term data.

One of the surprising results of our surveys is the observation that the percent of local business which expect increases in their future revenues has been slowly dropping since early 2016. This could become a concern should this trend continues.

After the election we clearly observed a spike in Valley’s business sentiment. That, however, quickly went away as expectations were not met. However, with the passage of the tax reduction law, we observed a measurable improvement in the Valley’s business sentiment in January 2018. While the new tax law provides clear benefits for large and multi-national businesses, its value to small and medium size businesses is not as clear. Most companies will discover their true share of this pie in the coming months.