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BIE August 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: August 13, 2014 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses were 2.0 percent in August, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted August 4–8 with 211 firms responding to questions about their business conditions, inflation outlook, and potential pricing pressures. The results are summarized below. Year-ahead inflation expectations and current conditions Respondents indicated that, on average, they expect unit costs to rise 2.0 percent over the next 12 months. Inflation uncertainty was unchanged at 2.3 percent. Firms also report that, compared to this time last year, their unit costs are up 1.8 percent. Respondents’ sales levels compared to what they consider “normal” conditions improved significantly, with approximately 58 percent of respondents indicating current sales levels are at or above normal. However, profit margins showed no improvement, with roughly 47 percent of respondents indicating their profit margins are at or above normal, compared to 49 percent in July. Quarterly question: Percent above/below normal sales levels* On average (weighed by industry share of GDP), respondents indicated their unit sales gap (percentage below normal unit sales) was approximately 3.4 percent below normal compared to 3.7 percent below normal in June. Both large firms (500 or more employees) and small firms (fewer than 100 employees) indicated a narrowing of their unit sales gaps, falling from 1.7 to 1.2 percent below normal and 7.8 to 6.1 percent below normal, respectively. Midsize firms’ (100-499 employees) unit sales gap remained unchanged at 2.5 percent below normal. Special question: Year-ahead compensation growth expectations The question, previously asked in May 2013, assessed firms’ average compensation growth expectations (including benefits). Firms indicated that they expect compensation to increase by 2.8 percent over the next 12 months, on average. Please see page 3 for a breakdown of the results. *Note: Due to a programming error, the unit sales gap quarterly question was asked out of turn. It will be asked again next month. For more information and interactive charts, visit the BIE survey site at www.frbatlanta.org/research/inflationproject/bie/. Monthly Questions Year-Ahead Inflation Expectations and Uncertainty (percent) 3.0 2.3 2.5 2.0 2.0 1.5 1.0 Uncertainty Year-ahead inflation expectations 0.5 0.0 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Sales Levels and Profit Margins Compared to Normal Times Year-over-Year Unit Cost Change (percent) (diffusion index, 0+ = greater than normal times) 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 3.0 2.5 above normal below normal Sales levels -13 Profit margins 1.8 2.0 1.5 1.0 -26 0.5 0.0 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question 4 2 0 Mean Percent Above/Below Normal Sales Levels Large firms (500+ employees) Midsize firms (100–500 employees) Small firms (1–99 employees) All firms (weigthed by sector GDP contribution) -4 -1.2 -2.5 -3.4 -6 -6.1 -2 -8 -10 -12 -14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Special Question Year-Ahead Compensation Expectations (percent) 4.0 3.6 3.0 2.9 2.8 2.4 2.0 1.0 0.0 Large firms (500+ employees) Midsize firms (100–500 employees) Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Small firms (1–99 employees) All firms (weighted by sector GDP contribution) How do your SALES LEVELS compare with sales levels during what you consider to be “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* June 11% 32% 38% 19% 0% -17 July 13% 33% 38% 16% 0% -21 August 10% 33% 34% 21% 3% -13 How do your current PROFIT MARGINS compare with “normal” times? June Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* 10% 46% 31% 13% 0% -27 July 11% 41% 36% 12% 1% -25 August 12% 42% 34% 12% 1% -26 Looking back, how do your UNIT COSTS compare with this time last year? Down (<-1%) About unchanged (-1% to 1%) Up somewhat (1.1% to 3%) Up moderately (3.1% to 5%) Up a lot (>5%) Mean June 2% 22% 61% 10% 5% 1.9% July 3% 20% 61% 12% 3% 1.8% August 4% 22% 58% 11% 5% 1.8% Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs over the next 12 months. June Down (<-1%) About unchanged (-1% to 1%) Up somewhat (1.1% to 3%) Up moderately (3.1% to 5%) Up a lot (>5%) Mean (Variance) 5% 24% 45% 18% 8% 2.0% (2.4%) July 5% 26% 44% 17% 8% 1.9% (2.3%) August 6% 23% 45% 19% 8% 2.0% (2.3%) Quarterly Question: By roughly what percent are your firm's sales levels above/below “normal,” if at all? Average percent above/below normal (number of responses) Firm size Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Aug-14 Small (1–99 employees) -7.3% (87) -7.4 (92) -8.6 (85) -9.1 (83) -7.8 (131) -6.1 (117) Midsize (100–499 employees) -1.5% (47) -6.6 (48) -2.2 (49) -5.6 (46) -2.5 (44) -2.5 (38) Large (500+ employees) -2.2% (56) -2.5 (66) -3.8 (69) -3.0 (67) -1.7 (61) -1.2 (53) All -4.3% (190) -5.6 (206) -4.8 (203) -5.7 (196) -3.7 (236) -3.4 (208) Note: Percentages may not sum to 100 due to rounding. Also, due to a programming error, the unit sales gap question was asked out of turn. This question will be asked again next month. *The diffusion index is calculated as an average response such that each response of much less is assigned a value of –100; somewhat less is assigned a value of –50; about normal, 0; somewhat greater, 50; and much greater, 100. Therefore, a positive index value implies that the indicator is greater, on average, and a negative index value implies that the indicator is lower, on average.