Survey Shows Cautious Optimism In State, National Economic Recovery

HARTFORD — Connecticut businesses may be facing some of the toughest times ever, with 52,000 job losses so far and economists predicting the recession may last until at least the end of the year. Consequently, companies are taking all measures possible to remain competitive and survive this downturn. Despite the bad news, however, employers express cautious optimism.

According to the first-quarter 2009 CBIA quarterly economic survey, many firms are slowly moving forward and reporting slight growth in productivity/sales, but they are concerned about their ability to sustain these positive changes in such a volatile economy. They are also slightly more confident that the state and national economies will begin to improve, but are experiencing delinquent payments causing cash flow issues.

“The recession is far from over,” said Peter M. Gioia, CBIA vice president and economist. “But, we are beginning to get a sense that some businesses are slowly starting to improve and executives are becoming more confident that the economy will recover and that they will be able to survive these tough economic times.”

Nineteen percent of respondents expect the national economy to improve. That is up from five percent last quarter (4Q08) and eight percent a year ago. Nearly two-thirds (62 percent) said the economy will worsen; down from 90 percent last quarter and 71 percent a year ago.

Business executives are also showing more confidence in the outlook of their own firms and the state’s economy. Ten percent said the state’s economy is improving, up from two percent last quarter and eight percent a year ago.

Nearly three-quarters (71 percent) expect the state’s economy to worsen, down from 92 percent last quarter but up from 57 percent last year. Sixteen percent expect their industry to improve; up from 6 percent last quarter and 14 percent a year ago. And more than half (52 percent) expect it to worsen; down from 66 percent last quarter, but up from 40 percent a year ago.

“These are modest improvements, and many businesses are still struggling to survive and making some very difficult decisions, including layoffs, furloughs, and shortened work weeks to keep their businesses operating and their workers employed,” said Mr Gioia.

Respondents have mixed reviews regarding the size of their workforce. While there is a slight improvement in the number of businesses reporting an increase in their workforce — 13 percent, up from 10 percent last quarter — those numbers are down from 26 percent one year ago. The same holds true for those reporting a declining workforce. More than a third (35 percent) reported a reduction in employees, and while that’s down slightly from last quarter (37 percent), it’s nearly double the number reporting job losses last year (16 percent).

Over the last three months, more than half (61 percent) of businesses experienced an increase in the number of delinquent payments on new or existing orders. More than one-third (39 percent) experienced payments 60 days late, and a quarter of respondents received payments 90 days late.

“Difficulty in receiving payments on time is a serious issue for businesses needing to keep cash flowing in order to keep their companies running,” said Mr Gioia. “This increase in late payments is an indication that the recession is hitting everyone.”

The survey found that more than three-quarters (76 percent) of businesses said that the most important factor in determining their performance for the next quarter is production/sales.

“That’s the highest figure we’ve seen in more than a year,” said Mr Gioia. “It indicates that businesses are struggling to produce their goods and sell them, and that if the economy doesn’t improve, they could be in serious jeopardy.”

Mr Gioia added that this survey shows marginal improvement over last quarter and may indicate that recent efforts by the Federal Reserve, Congress, and the US Treasury to stimulate the economy may be working.

“These federal initiatives appear to be having a positive effect on business confidence, and if it continues, we could be seeing the very early stages of a turnaround in the economy,” said Mr Gioia.

The survey was conducted by CBIA in mid-March 2009. A total of 389 executives responded, for a 14 percent response rate and a margin of error of plus or minus five percent.