Arizona Business Leaders Confidence Index®: Katrina Tempers Expectations for Fourth Quarter 2005
Phoenix, AZ – The Arizona Business Leader Confidence Index® (BLCI) declined 4.4 points to 54.7 in the survey that looks ahead to the fourth quarter of 2005. The survey opened on September 1st as reports of hurricane Katrina’s devastation began to emerge, and closed on September 14 as estimates of losses continued to move upward. The drop in business leaders’ confidence parallels a similar drop in consumer confidence recently reported by the University of Michigan.
“This quarter’s results certainly appear to be tempered by concerns over hurricane Katrina,” said Marshall Vest, director of economic and business research at Eller College of Management at The University of Arizona. “The impact of Katrina on business sentiment is magnified by uncertainty concerning its impact on factors beyond the costs of recovery, such as energy production and inflation.”
Despite the expected uncertainty surrounding an event of this magnitude, overall, panelists do expect the business climate to continue expanding at a moderate pace. Panelists remain upbeat about their own industry, but expressed less optimism for the national and state economies. This quarter, all four industry components of the index remained relatively unchanged. Expectations for sales slipped slightly from last quarter to 59.3, as did profits at 56.4. Hiring expectations maintained a reading of 57.4 and capital expenditures edged up to a reading of 58.9.
The most significant shifts in the BLCI were in the panelists’ expectations for the national and state economies. With a decline of more than 16 points, the reading of just over 40 for the national economy indicates that panelists expect that it will continue to grow at a slower pace during the fourth quarter. Panelists also lowered expectations for the Arizona economy, although to a lesser degree. At 55.6 the state component remains well within a positive reading.
The most recent survey also indicates that Phoenix has turned decidedly less optimistic, just as Tucson panel members did the previous quarter. The BLCI reading for Phoenix decreased by 5.7 points, compared to a modest 0.6 in Tucson. In keeping with recent history, Phoenicians remain slightly more upbeat than their neighbors to the south, with three of four industry components tracking above 60.
“Considering the potential impact of hurricane Katrina throughout the nation and our economy, this quarter’s Arizona BLCI offers an especially timely and valuable barometer of the state’s business climate,” said George Boltwood, Compass' senior executive vice president and head of corporate banking. “This insight is particularly important now as many businesses make their plans going into 2006.”
This quarter’s survey also probed Arizona business leaders about their planned information technology investments for 2006. In addition, it asked for their perceptions on the impact of IT expenditures over the last three years in relation to product/service cost and quality, as well as revenue. For 2006, panelists were asked to rank their planned IT expenditures in six categories. Of these, administrative functions were reported as the highest category, with 34% of respondents ranking this as number one. Security was reported as the lowest expenditure category, with only 5% ranking it as number one. As for IT expenditures over the last three years, results indicate that panelists are leveraging many of their IT expenditures not simply to reduce product costs, but also to improve revenues through product quality enhancements.
The BLCI is compiled by Compass Bank and its university partners at The University of Arizona’s Eller College of Management, The Center for Business and Economic Research at The University of Alabama, the Leeds School of Business at the University of Colorado and The University of Texas at Austin’s IC2 Institute. Complete results of all surveys can be found at www.blci.com.
The Economic and Business Research Center at The University of Arizona’s Eller College of Management was established by the State Legislature more than 50 years ago to provide relevant economic data to the Arizona business community. The Eller College of Management supports more than 4,500 undergraduate and 600 graduate students. The Eller College is known for its innovative curriculum, internationally recognized faculty, advancing research, and excellence in entrepreneurship, MIS, and social responsibility. Eller ranks at the top in grant and research dollar generation, has a top five MIS Department, and has nationally ranked undergraduate and graduate programs. The College is located on The University of Arizona campus in beautiful Tucson, Arizona. Visit www.eller.arizona.edu for more information.
Compass Bank is a subsidiary of Compass Bancshares, Inc., a Southwestern financial holding company with $29.5 billion in assets and 385 full-service banking offices in Alabama, Arizona, Colorado, Florida, New Mexico and Texas. Compass Bancshares is among the top 30 U.S. bank holding companies by asset size and ranks among the top earners of its size based on return on equity. The company's earnings per share have increased for 17 consecutive years and dividends per share have increased for 24 consecutive years. Additional information about Compass, a member of the S&P 500 Index and the Dow Jones Select Dividend Index, can be found at www.compassweb.com.
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