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Local businesses are slowly becoming more optimistic about the economy.
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KAA surveys Lehigh Valley businesses on a quarterly basis and collects around 700 observations per year. The
Employment and Purchasing
Index for the Lehigh Valley highlights the results of these surveys. In April 2012 we conducted our 50th survey of this series.
The following is a summary of our findings:
The Overall Index of Purchasing and Employment Plans for the Lehigh Valley which has been
rising since October 2011,
took a respite in April 2012. The April business sentiment index is not statistically different from its January 2012
level. However the moving average of this indicator is continuing to rise. Last year, we observed local businesses
becoming more optimistic in the 1st quarter, just to see this enthusiasm erode during the 2nd and the 3rd quarters. This year,
we have again observed a significant increase in optimism in January. However, unlike last year, April's data is not
pointing in any direction. The moving average of the index, however, is still rising.
Our survey of Lehigh Valley businesses indicates that they are continuing to hire more
people than they have been
laying off. The average participant in our survey has gained 0.2 employees in the last six months. While this is not
close to the pre-recession hiring level, it is a far cry from 2009 when the average survey participant lost 0.8 employees.
Local businesses are continuing to plan to hire more people in the next six months. Average participant in the survey
is planning to hire 0.9 new employees in the next six months. "Finance and insurance" and "other
services" are the leading
sectors in their plans for future hiring in the Lehigh Valley.
Purchasing plans index for the next six months rose by 6.5% in April, reducing the gap
between actual and planned
expenditures. Prior to The Great Recession plans for future purchases and actual purchasing closely followed one
another. Halfway through The Great Recession plans for future purchases became significantly more optimistic than the
actual purchases. This dichotomy continued through the first half of 2011. In the last nine months, plans for
future purchases have dropped significantly below actual purchases. For the last three quarters, local businesses have
been, on average, underestimating their own future expenditures.
Actual purchases in the last six months, dropped to 61.8 from January's level of 64.5. Historically, the expansion
predictor for this index is when it exceeds the 63-65 range in the Lehigh Valley.
It is clear that businesses are increasing their actual expenditures. Since last October, the index of actual
expenditures has stayed above 60. During the same period, the index of planned future expenditures has been below
59 for every single quarter. This signals uncertainty about the future of the economy.
Local businesses are slowly becoming more optimistic about the economy. While there are ups-and-downs in individual
observations, the moving averages of all the indices in the study are rising. Disappointment with the slow economic
growth is making businesses overly cautious. However, the data clearly indicates that despite all of this, businesses
are planning to spend more and hire more employees in the next six months.
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Appendix
An index of 50 indicates an even split between those who plan to increase and those
who plan to decrease either employment or purchasing. When the index is above 50, it indicates that the number of those
who plan to increase exceeds those who plan to decrease and vice versa. However, our experience in the Lehigh Valley has
proven that businesses' projected intentions on the surveys are more optimistic than their future actions. Accordingly, we
interpret the indices based on their historic
trends. We used the boom years of 1998 through early 2000 for establishing the expansion base and the recession years of
2001 - 2002 for establishing the contraction base. Accordingly, indices above 65 were associated with expansion, while
indices below 63 were recognized as a contraction period in the Valley. Thus the range 63 to 65, and not 50, marks the
expansion-contraction even split for the Lehigh Valley. At the end of this economic cycle, its data will be added to
the analysis and a new contraction-expansion demarcation band will be calculated for the Lehigh Valley.
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