This post originally appeared at https://www.badgerinstitute.org/wisconsin-employers-outlook-is-gloomy-and-thats-a-warning/

Expecting a raise? Temper your hopes, says new survey

You can manufacture lots of things in Wisconsin: motorcycles, cheese, tissue, pool cues, even the kitchen sink.  

But you can’t manufacture optimism.

When Wisconsin Manufacturers and Commerce, the state’s business chamber, last month put out the results of its semiannual survey of CEOs’ sentiments, the outlook was grim: 22% rated the Wisconsin economy as “strong.” Only 10% said the same of the national economy, with 28% calling it “weak.” That’s a gloomier number than the WMC found in summer 2020, amid lockdowns.

Will things improve? No: 47% expect the national economy to “remain flat” over the next six months, and 20% — one in five —expect it to “decline,” as in recession.

“Optimism is falling,” said WMC President Kurt Bauer, who quoted one captain of industry as saying, “We may not be in a recession, but we are certainly in something.”

The survey clarifies why many Wisconsinites feel a chill even as a happy chorus about the strongest economy ev-err burbles out from NPR, CNN, Reuters, the New York Times, NPR again, CNN again, and on and on.

The clarification lies in a question the WMC has previously asked:

How much, it asked the individuals responsible for keeping firms both staffed and afloat, do you expect hourly wages to increase or decrease in your company in 2024?

About 1 in 4 Wisconsin CEOs said they expect hourly wages to rise less than 3%. That’s up from about 1 in 6 a year ago. Only 14% expect raises above 4%. That’s down from 34% of CEOs a year ago.

The most common expectation — this from 36% of CEOs — is that their company’s hourly wages will rise an average 3% to 3.5% this year.  

That’s not on top of inflation, said WMC spokesman Nick Novak. So when you consider that inflation last month came in sharply higher than expected, at a 3.1% annual rate, this means the most common answer that Wisconsin employers — 72% of whom said they’re still having a hard time hiring enough people — can give to their staff is: You’ll be running in place.

This comes after Wisconsin’s average weekly earnings, adjusted for inflation, had at last started to turn upward, following a long downward slide that began in early 2021, when inflation took off and began corroding earnings. The U.S. Bureau of Labor Statistics’ most recent figures show average weekly earnings for all private-sector workers in Wisconsin at $1,067, up about 5% from the inflation-adjusted low last March — but still 3% under the inflation-adjusted figure of $1,101 in December 2020.

Wisconsin employers had been doing what they could to keep talent, said Novak. “We saw raises that were 5%, 6% or higher.” Now, the figures are returning to earth, even if inflation still isn’t down to pre-2021 levels.

“There are some economic realities out there,” said Novak, who oversees WMC’s survey. “Businesses are not the government — they can’t write checks forever knowing they can just print money.”

“Businesses can only raise wages as fast as they can raise revenue.”

They could raise revenue if they invest in expansion, but among the people who must answer to investors for the results of such expansion plans, three times as many think the national outlook is weak as think it strong. “It’s hard to pull the trigger on something when you’re unsure of where the economy is going,” said Novak.

The gloom, while justified, is all so unnecessary. If you can’t manufacture optimism, we know what corrodes prosperity.

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output,” Milton Friedman said in 1970 on his way to winning the Nobel Prize. Yet the federal government, after 38 years of low inflation, now rapidly increased the quantity of money by vomiting forth thousands of billions of newly printed dollars, so much that states and cities cannot spend it all, touted as “investment” but really just adding new girth to bloated government.

And, behold, groceries now cost 22% more than they did in January 2021.

Other fundamentals of good economic growth are just as well known: Taxes should be moderate and perceived as fair, especially by those who most easily can leave. Regulations should be stable and practicable rather than punitive. A legal environment should be predictable and moderate in cost. Civil order is preferable to seeing your store on the TV news going up in flames — looking at you, summer of 2020.

And while political choices affect these conditions, pursuing them shouldn’t be political. Parties can compete with differing definitions of “moderate” and “order.”  

What doesn’t reassure anyone, however, is to deny that Wisconsin CEOs really are seeing storm clouds ahead. Their gloom is a warning.

Patrick McIlheran is the Director of Policy at the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.

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