First Niagara Annual Survey: Eastern PA Business Leaders Less Optimistic About Business Conditions for 2013 Economy

But Confidence Levels Found Higher With Executives in Philadelphia and Its Suburbs

Leaders of private businesses in Eastern Pennsylvania are showing lower levels of confidence than last year when looking at business conditions for the Pennsylvania state economy and for their own industries in 2013, according to results from First Niagara’s Fourth Annual Survey of Pennsylvania Business Leaders released today.

However, the survey found business leaders in Philadelphia and its suburbs registered higher levels of confidence compared to other company executives in the rest of Eastern Pennsylvania.

Overall, the statewide survey conducted by Siena College Research Institute found 715 leaders of private companies in the 10 major metropolitan areas in Pennsylvania to have taken a step back in their confidence levels regarding current and future economic conditions after three years of expressing increasing optimism following the 2007-2008 recession.

Surveyed were chief executive officers, chief financial officers and other senior managers of private businesses with $5 million to $200 million in annual sales in the service, manufacturing, engineering and construction, retail, wholesale and distribution, financial and food and beverage industries. Responses came from executives in the 10 major metropolitan areas of Philadelphia, Pittsburgh, Allentown, Scranton, Altoona, Harrisburg, Erie, Lancaster, Reading and York.

In Eastern Pennsylvania, 251 business leaders participated, with 182 coming from the Philadelphia metro area representing Bucks, Chester, Delaware, Montgomery and Philadelphia counties. Rounding out the Eastern PA overall responses were 69 from the Allentown metro area that included Lehigh, Northampton and Carbon counties.

“The good news is that the survey found Philadelphia area executives more upbeat than otherwise about 2013 for the state economy and for their own industries,” said Robert Kane, Eastern Pennsylvania regional president for First Niagara Bank. “But there are other business leaders in Eastern Pennsylvania showing signs of frustration with continuing to operate their companies in the ‘new normal’ while waiting for a more robust, sustained economic climate.”

Regarding confidence levels, the First Niagara survey each year uses an overall Confidence Index as a measure of business leaders’ current assessment of and future expectations for economic conditions regarding the state economy and their specific industries. The index is based on a scale of zero to 200 with zero being the most pessimistic and 200 being the most optimistic.  An index of 100 would be the breakeven point with an equal percentage of negative and positive responses.

The survey report further provides three confidence indices for the current assessment, future expectations and overall as a combination of the two.

Compared to last year when all three indices were over 100 for Eastern Pennsylvania, this year’s survey shows all three confidence indices for Eastern PA business leaders to be below 100 where there are more negative than positive responses about economic conditions. Philadelphia metro area business owners topped the 100 benchmark on the future confidence index with 102.8.

This year, Eastern Pennsylvania business leaders registered an overall Confidence Index of 90.6 – a 23.5 point decline from last year—while those in the Philadelphia metro area had an index of 95.6. Eastern PA executives recorded a current Confidence Index of 83.5, down 23 points from last year with the Philadelphia metro area registering an 88.5 index. For the future Confidence Index, the Philadelphia metro area registered 102.8 – on the optimistic side of the breakeven point – compared to a 97.8 index, down 23.9 points from last year, registered by all the Eastern Pennsylvania business leaders.

As a reflection of those overall lower confidence levels, 30% of all Eastern PA business expect the state economy to improve in 2013 down from 42% who said the same last year, and 32% say it will worsen in 2013, up from 16% last year. Another 38% expect it to remain about the same in 2013.

When it comes to projected revenues, just over one-third, 36%, of Eastern PA business leaders, down from 46% last year, predict increasing revenues in 2013, while 41% think they will stay the same and 22%, up from 19% last year, say revenues will decrease.

For projected profits, 30% of Eastern PA business leaders, down from 36% last year, expect profits to increase in 2013. While another 35% predict they will stay the same and 36%, up from 26% last year, expect profits to decrease.

One-quarter, 25%, down from 32% last year, of Eastern PA company leaders say they expect to increase their current labor force in 2013, while 64% say it will remain the same and only 10% say they will decrease their work force.

The survey found 45% of regional business leaders say they plan to invest in fixed asset acquisitions over the next year – with another 11% unsure -- to meet growing demand, reduce costs or enhance profitability. Of those that intend to invest in fixed assets, 59% plan to use internally generated funds while 32% intend to finance with the assistance of a financial institution.

Other key survey results for the Eastern PA region featuring the Philadelphia and Allentown metro areas include:

22%, down from 32% last year, of Eastern PA business leaders say current business conditions in Pennsylvania were better at the end of 2012 compared to six months earlier. Another 42% say conditions were about the same and 36%, up from 22% last year, say they were a little or considerably worse.

30%, down from 36% last year, of area business leaders say they expect business in their own industries to be a little better or considerably better in 2013, compared to 39% who say it will be the same and 32%, up from 20% last year, who say it will be a little or considerably worse.

Market growth/demand at 42% was cited as the foremost strategy local business leaders will employ to enhance profits, followed by cost reduction (26%),  price increase (16%) and new technology (10%).

The two top challenges concerning Eastern Pennsylvania business leaders are governmental regulation (22%) and adverse economic conditions (20%), followed by health care costs (12%), and taxation (10%).

In Eastern PA regarding the state government’s ability to improve the business climate in 2013, 2% of business leaders say they are very confident in the ability, 29% somewhat confident, 55% are not very confident and 14% are not confident at all.

Results from First Niagara’s Fourth Annual Survey of Pennsylvania Business Leaders are available at http://www.siena.edu/sri/pennsylvaniabusinessleaders2013

 METHODOLOGY
A quantitative 26-question survey was conducted through the 2012 fourth quarter by the Siena College Research Institute (SRI) where 715 business leaders responded either by mail, on the SRI Web site, or through a personal interview. Business leaders included chief executive officers, chief financial officers and other senior managers of private businesses with $5 million to $200 million in annual sales in the service, manufacturing, engineering and construction, retail, wholesale and distribution, financial and food and beverage industries.  These business leaders represented the major areas of: Philadelphia/Allentown (35% of respondents), Pittsburgh/Erie (33%), rest of statewide including Harrisburg, York, Scranton, Lancaster, Reading, and Altoona (32%).

ABOUT FIRST NIAGARA
First Niagara, through its wholly owned subsidiary, First Niagara Bank, N.A., is a multi-state community-oriented bank with approximately 430 branches, $36 billion in assets, $28 billion in deposits, and approximately 6,000 employees providing financial services to individuals, families and businesses across Upstate New York, Pennsylvania, Connecticut and Massachusetts. For more information, visit www.firstniagara.com.