ABI Survey: Cautious Optimism As 2024 Begins
January 15, 2024 | ABI Survey: Cautious Optimism As 2024 Begins
ABI members are guardedly upbeat on their companies’ prospects for sales growth, additional hiring and capital expenditures in the first quarter of 2024, judging from ABI’s most recent Quarterly Business Survey.
Of 34 respondents participating in the survey, 38% describe their overall outlook on the economy for the first quarter as “optimistic,” 47% as “neutral” and just 14% as “pessimistic.”
That broad neutral-to-positive sentiment tracks with responses to the survey’s three other questions:
- Asked about sales growth for the first quarter, 32% foresee expansion, 52% expect sales to stay about even and 14% project sales to retract.
- On the question of hiring, 35% expect employee headcount in their businesses to grow, 58% predict it will stay about the same and 5% look for a decrease.
- Nearly two-thirds (64%) of survey respondents indicated plans for capital expenditures in the first quarter, and 35% said they had no such plans.
“People in our three markets are thinking growth and are optimistic,” said Grant Friesth, senior vice president and market president – commercial banking, for Security National Bank of Iowa. Even the folks that responded “stay about the same” on the survey questions may be tempering their optimism with a bit of caution, said the West Des Moinesbased banking veteran. “There’s a greater feeling of uncertainty with the recent interest rate changes.”
Security National, founded in Omaha in 1964, operates in Iowa, Nebraska and Texas. Businesses across the bank’s territory “are continuing to find ways to grow and looking for opportunities,” Mr. Friesth said.
“The uncertainty lies with the inflationary environment and the impact on interest rates,” Mr. Friesth added. “People are also wondering ‘How much purchasing power does the consumer have left?’”
Overall numbers have been supported by the strong consumer, who in turn has been supported by a strong job market, he said. “How much longer will that last?”
“Hangover from Covid” remains a factor in the business environment, Mr. Friesth said. The pandemic brought changes in the workforce and supply chains that are still evolving. At the same time, automation and robotics are adding efficiencies that are getting down to the small business level, he added.
Jerry Krantz, director - commercial business planning for Quad Cities steel plate manufacturer SSAB Americas, agrees that cautious optimism is the prevailing sentiment and that interest rates underlie the instability in the economy. Markets were encouraged by the Federal Reserve’s decision to hold rates flat the past two months, he noted.
Mr. Krantz said SSAB has no plans for large capital expenditures in the first quarter, but otherwise, he responded “along with the majority” on the survey questions. He expects SSAB’s employment and sales growth to both remain “pretty flat,” but he’s not complaining. “If there’s any growth it’s going to be flat to up slightly 2-3%. That’s very good considering on average we’re still working at elevated levels from the previous couple years.”
A lot of the optimism in the steel industry has to do with infrastructure and energy, he explained. “We’re definitely seeing some good things from the IRA (Inflation Reduction Act). That law modified and extended the clean energy Investment Tax Credit to provide up to a 30% credit for qualifying investments in certain wind, solar and other renewable energy projects.
“We supply a lot of wind tower manufacturers with plate that is formed into towers. Expect that to be strong especially as we get into second half of 2024,” Mr. Krantz said.
“It’s a real circular economy for us,” Mr. Krantz noted. SSAB uses energy produced by MidAmerican Energy and supplies a lot of the material for MidAmerican’s wind towers that generate that energy.
“We had a press event with Governor Reynolds mid-last year. SSAB was the first steel company in the world to produce a zero carbon emission plate and that steel - produced here in Iowa – was then used to build wind towers. That’s pretty exciting for us here, and exciting for Iowa,” he said.
The Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Law (BIL), signed into law by President Joe Biden in 2021, has also been good for the steel plate demand. “We expect very strong business for bridge repair and replacement and road construction. Heavy equipment and forestry equipment are also expecting a good year,” said Mr. Krantz.
“I honestly think people are being cautious. We get affected a lot by weather. The Fed announced they would cut back interest rates next year. That made (the) markets go up. There is some reason for optimism, but people are going to be cautious,” said Charese Yanney, owner of Sioux City-based Guarantee Roofing, Siding and Insulation Co., LLC.
Ms. Yanney said weather is a huge factor in her business, which operates in a 100-miles radius of Sioux City. Her region has seen strong capital investment in the past five to seven years, with some companies expanding significantly, she said. Guarantee is booked through September of 2024.
Membership on the Iowa Transportation Commission gives Ms. Yanney a statewide perspective. “The northwest region is strong, but not as strong as the eastern and central Iowa. We get our fair share of new companies to land,” she said. “The Cedar Rapids-Iowa City corridor has expanded significantly.”
Ms. Yanney doesn’t expect the year to start with a bang for her business — “It all depends on the weather,” she says — but things are looking positive for Iowa overall. “I would guess the first quarter would be pretty strong for the state. I have noticed with the Department of Transportation that people are buying cars. Tax receipts are staying strong, between gas tax and taxes on new or used vehicles.”
Policy Prescription: ‘Stay the Course’
Things are reasonably good, say these observers, but what should policymakers be doing in 2024 to keep the ball rolling or make the economy run even better?
“We still have a little more tax cutting to do in the state of Iowa,” said Ms. Yanney. “Also, it’s important to keep education strong. I’m a little bit concerned about education and public schools. People look at that when planning to expand or move to Iowa. It’s imperative that public education stay strong. We were at the top. We’re no longer there. When the kids aren’t reading and retaining and their tests scores aren’t as high as they should be, that concerns me. We need to figure out the problem and fix it. “
Things the Fed is doing right now” are helpful at the macro level, said Mr. Krantz. “We need to try to get mortgage rates down a bit to spur economy. At local level, when it comes to business, politicians in place now are very friendly to business.”
“Stay the course, it’s definitely helping. Find a way to get some more people to the state to help with the employment issues,” he said. SSAB struggles to find skilled workers, and this issue comes up as a big concern as he talks with other business people in the state, Mr. Krantz said.
Mr. Friesth in central Iowa advises state officials to stick with the path they’ve been following over the past year. “The added focus and changes with the workforce and workforce development has been very positive. For quality of life, having a robust job environment is good for everybody,” he said.
He’s also a fan of efforts to find “creative solutions around childcare”. “It’s a huge issue,” he said. Mr. Friesth also supports the new apprentice program being rolled out. “Helping with the State’s manufacturers will be key to create a broader and deeper labor pool,” he said.
“We have a solid education network in Iowa, with three great state universities. We also have a very strong community college network. We need to continue to look for ways to improve, but also continue to focus on our current strengths.”