Alabama Business Confidence Index

Second Quarter 2020

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Weaker Confidence in Q2 2020

The early stages of the economic uncertainty stemming from COVID-19 are certainly reflected in the second quarter Alabama Business Confidence Index (ABCI) results. The full extent of the pandemic’s impact on Alabama businesses is still unknown, but these results represent business confidence during the March 1-15 window. For context, over 98 percent of panelists responded before President Trump declared the COVID-19 pandemic a national emergency on March 13. In the Q2 2020 survey, the ABCI decreased 12.1 points from the previous quarter to reach a neutral index of 50.5, indicating expectations for continuation of Q1 2020’s growth. This data comes from the Alabama Business Confidence Index (ABCI) survey, which is conducted quarterly by the Center for Business and Economic Research at the University of Alabama’s Culverhouse College of Business.


Statewide Change from Q1
ABCI 50.5 -12.1
Alabama Economy 50.5 -12.6
US Economy 43.1 -16.8
Industry Sales 53.3 -12.8
Industry Profits 51.9 -11.2
Industry Hiring 53.6 -7.5
Industry Capital Expenditures 50.5 -11.6

 

Statewide Component Index Analysis

  • Alabama Economy: The index for the Alabama economy decreased 12.6 points to register at 50.5 in this quarter, a neutral index that forecasts a continuation of Q1 2020’s economic conditions.
  • US Economy: With an index of 43.1 after a 16.8-point decrease, Alabama business leaders are anticipating worse national economic conditions compared to the previous quarter.
  • Industry Sales: At the time of the survey, business leaders throughout the state were expecting their sales to improve in the second quarter with a mild-positive index of 53.3 after a 12.8-point decrease from Q1 2020.
  • Industry Profits: Business leaders are also very mildly confident in forecasting profit growth compared to the previous quarter; the index decreased 11.2 points to reach 51.9.
  • Industry Hiring: Confidence in increased hiring is mild this quarter at 53.6 after a 7.5-point decrease from Q1 2020.
  • Industry Capital Expenditures: With an index of 50.5 after an 11.6-point decrease, business leaders forecast a continuation of the Q1 2020’s capital expenditures in the coming quarter.

Statewide Response Breakdown

Statewide Response Breakdown

Participants’ responses reported as percentages


Much Worse Somewhat Worse No Change Somewhat Better Much Better
Alabama Economy 3.1 28.1 36.9 27.5 4.4
US Economy 10.0 36.9 28.1 20.6 4.4
Industry Sales 6.9 21.9 28.1 37.5 5.6
Industry Profits 5.6 25.6 30.0 33.1 5.6
Industry Hiring 4.4 16.2 45.0 29.4 5.0
Industry Capital Expenditures 6.2 20.6 44.4 22.5 6.2

 

ABCI by Metro Area

CBER’s Forecast for Alabama

The Center for Business and Economic Research forecasts a 2.1-percent decrease in Alabama GDP for 2020 due to the economic impact of COVID-19. Obviously, this is a decrease from the 2.3 percent growth in GDP for 2019. Employment is expected to decrease 0.9 percent in 2020, and CBER forecasts tax revenues increasing a modest 1.2 percent in the 2019-2020 fiscal year.

Metro Economies Express Lower Confidence

Business confidence throughout the state’s metro areas decreased this quarter. Business leaders in Huntsville were feeling most cautious about Q2 2020, with an ABCI of 47.4 after decreasing 16.8 points from Q1 2020. Mobile followed closely with a metro ABCI of 47.5, indicating mild confidence in their negative forecast after an 18.1-point decrease from the previous quarter. Birmingham-Hoover’s ABCI decreased 2.3 points to register at 55.8, indicating moderately confident expectations for growth compared to the previous quarter. Unfortunately, there was not enough participation from the Montgomery metro area to calculate a valid ABCI, however the survey responses from Montgomery panelists are included in the statewide ABCI summary.

 

Metropolitan Statistical Area (MSA): Second Quarter 2020 Outlook


Statewide Birmingham-Hoover Huntsville Mobile Montgomery
ABCI 50.5 55.8 47.4 47.5
Alabama Economy 50.5 53.8 45.5 50.0
US Economy 43.1 48.1 37.7 42.5
Industry Sales 53.3 61.5 50.0 43.8
Industry Profits 51.9 56.7 50.9 48.8
Industry Hiring 53.6 58.7 53.6 51.2
Industry Capital Expenditures 50.5 55.8 46.8 48.8

 

Industry Component Index: Second Quarter 2020 Outlook


ABCI Change from Q1 Sales Profits Hiring Capital Expenditures
Construction 60.8 -3.1 68.8 62.5 66.7 58.3
Healthcare/Social Assistance Services 57.1 -8.3 60.0 60.0 62.5 52.5
Transportation/Information/Utilities 54.8 0.6 57.1 53.6 60.7 50.0
Wholesale Trade 54.6 -2.7 61.1 55.6 52.8 52.8
Manufacturing 52.5 -10.0 50.0 51.2 53.8 55.0
Statewide 50.5 -12.1 53.3 51.9 53.6 50.5
Finance/Insurance/Real Estate 50.1 -11.4 51.8 48.2 50.0 56.2
All Other Services 47.5 -14.0 48.0 48.0 53.4 48.0
Professional/Scientific/Technical Services 47.4 -17.2 53.7 53.7 50.9 45.4
Retail Trade 32.6 -35.5 41.7 37.5 33.3 20.8

 

Varied Confidence by Industry

In the Q2 2020 survey, forecasts varied dramatically by industry. Construction had the highest ABCI at 60.8, indicating especially strong confidence for growth in sales, hiring, and profits compared to Q1 2020. Healthcare and social assistance expressed moderate to strong confidence in Q2 2020 growth with an ABCI of 57.1 this quarter. On the other end of the spectrum, panelists in retail trade are anticipating decreased capital expenditures, hiring, and profits with very strong confidence. The retail trade ABCI dropped 35.5 points from the previous quarter to register 32.6 in Q2 2020. The six remaining industry categories are more moderate with ABCIs closer to 50, indicating mild confidence in their forecasts.

  • Industry Sales: In the Q2 2020 survey, forecasts for industry sales ranged from positive with strong confidence to negative with moderate confidence. Construction had the highest sales index, forecasting increased sales compared to Q1 2020 with very confident 68.8. Wholesale trade and healthcare and social assistance services also had strong confidence in increased sales with indexes at or above 60.0. The sales index for manufacturing was a neutral 50.0, indicating expectations for a continuation of the previous quarter’s level of sales. Retail trade had the lowest sales index at 41.7, indicating moderate confidence in decreased sales compared to Q1 2020.
  • Industry Profits: Like the other component indexes, there were significant differences in the various industries’ expectations for industry profits. Panelists in six of the nine industry categories anticipate an increase in profits with confidence ranging from strong (construction at 62.5) to very mild (manufacturing at 51.2). Three industries forecast a decrease in profits compared to Q1 2020: retail trade with a strongly confident index of 37.5 and finance, insurance, and real estate and all other services with mildly confidence indexes of 48.2 and 48.0, respectively.
  • Industry Hiring: As we mentioned in the introduction to this report, most of the responses were collected before the president declared a national emergency and before the scale of the \textsc{covid}-19 pandemic was really understood. That being said, forecasts for industry hiring were largely mild, with five of the nine industries’ indexes registering between 50.0 and 53.8, indicating mild confidence in a continuation of or increase of Q1 2020’s hiring levels. Construction anticipated increased hiring in Q2 2020 with strong confidence, which is shown in their very high index of 66.7. Healthcare and social assistance services and transportation, information, and utilities also forecast hiring with strong confidence with indexes of 62.5 and 60.7, respectively. Only retail trade expected to decrease hiring levels this quarter with a strongly confident index of 33.3.
  • Industry Capital Expenditures: Industries were feeling more cautious in their forecasts for capital expenditures than the other industry component indexes. Even the industry capital expenditures index for construction, the most confident positive index, only registered at a moderate 58.3. The index for transportation, information, and utilities was a neutral 50.0, indicating expectations for a continuation of Q1 2020’s levels of capital spending. Panelists in all other services and professional, scientific, and technical services forecast decreased capital spending compared to the previous quarter with mild confidence. Meanwhile, retail trade anticipated decreased capital expenditures in Q2 2020 with a very confident index of 20.8.

 

Firm Size: Second Quarter 2020 Outlook


Number of Employees
0 to 19 20 to 99 100+
ABCI 48.2 50.8 53.2
Alabama Economy 48.2 50.6 53.4
US Economy 39.0 45.0 47.1
Industry Sales 52.2 51.2 56.2
Industry Profits 51.8 49.4 53.8
Industry Hiring 51.1 56.2 54.8
Industry Capital Expenditures 46.7 52.5 53.8

Firms of All Size Forecast with Mild Confidence

  • After having the highest firm ABCI for three consecutive quarters, small firms, those with fewer than 20 employees, are feeling the most uncertain about Q2 2020 with a mildly negative ABCI of 48.2. Small firms had positive expectations with very mild confidence for industry sales, profits, and hiring, but felt strong confidence in forecasting a worse US economy compared to the previous quarter.
  • Mid-sized firms, those with 20 to 99 employees, were also mild in their forecasts with a neutral ABCI of 50.8. Panelists in these firms are feeling moderately confident forecasting growth in industry hiring and a worse US economy in Q2 2020, but have milder confidence when anticipating changes to the Alabama economy, industry sales, and profits with indexes very near to 50.
  • Panelists in large firms, those with 100 or more employees, had the highest ABCI this quarter at a mildly positive 53.2. Business leaders in these large firms were moderately confident in their forecast for increased hiring and mildly confident that the other industry components would increase compared to Q1 2020. The only negative index for large firms was the US economy index at a 47.1, indicating mild confidence that the national economy would perform worse in the coming quarter.
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The Center for Business and Economic Research would like to thank the 160 Alabama business executives who completed the second quarter 2020 ABCI survey. This is the 74th consecutive quarter this report has been recorded, and it would not have been possible without your participation.

Be sure to log in during the June 1–15 survey window to record your opinions about economic prospects and industry performance looking ahead to the third quarter of 2020.

Analysis provided by Susannah Robichaux, Socioeconomic Analyst, Center for Business and Economic Research, Culverhouse College of Business,The University of Alabama.

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