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BIE June 2013 Atlanta Fed Survey of Business Inflation Expectations For immediate release: June 21, 2013 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses fell to 1.8 percent in June, down 0.2 percentage point from May, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted June 10–14 with 190 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 indicate that, on average, they expect unit costs to rise 1.8 percent over the next 12 months, roughly in line with the recent year-ahead inflation forecasts of private economists. Inflation uncertainty increased slightly to 2.6 percent in June from 2.5 percent in May. Firms also report that, compared to this time last year, their unit costs are up 1.7 percent. Respondents noted dramatic improvement in sales levels, with 56 percent now saying their current sales levels are at or above normal (the largest percentage since the series began). Profit margins also improved from the May reading, with 49 percent of firms stating that their margins are at or above normal. Quarterly question: Percent above/below normal unit sales levels On average (weighted by industry share of GDP) respondents indicated that unit sales levels are approximately 4.3 percent below normal, a significant improvement from the March measure of 7.7 percent below normal. Firms of all sizes experienced this narrowing of the unit sales gap, with midsize firms (100–499 employees) seeing the largest improvement at 1.5 percent below normal, compared to 6.8 percent below normal in March. Small firms (less than 100 employees), while still reporting a relatively large unit sales gap, were at 7.3 percent below normal versus 12.2 percent below normal in March. Large firms (500 or more employees) also improved at 2.2 percent below normal, compared to 3.3 percent below normal in March. Special question: Year-ahead average price change expectations The special question asked respondents to assign likelihoods to various price change scenarios over the coming year. Respondents’ mean expectation (weighted by industry share of GDP) for the change in the average price of their products and/or services was 1.5 percent. 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) 3.5 3.0 2.6 2.5 2.0 1.8 1.5 Uncertainty 1.0 Year-ahead unit cost expectations 0.5 0.0 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Sales Levels and Profit Margins Compared to Normal Times Year-over-Year Unit Costs (percent) (diffusion index, 0+ = greater than normal times) 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 3.5 3.0 2.5 Sales levels Profit margins -14 2.0 1.7 1.5 -22 1.0 0.5 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 Jun-12 Sep-12 Dec-12 Mar-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Average Percent Above/Below Normal Sales Levels 4 Sep-12 2 Dec-12 Mar-13 Jun-13 0 -2 -2.1 -4 -6 -3.3 -1.5 -2.2 -4.3 -4.9 -8 -6.8 -10 -9.6 -12 -14 Large firms (500+ employees) -7.3 -9.6 -11.1 Midsize firms (100–500 employees) Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Jun-13 -7.6 -7.7 -7.7 -10.3 -12.2 Small firms (1–99 employees) All firms Special Question Year-Ahead Average Price Change Expectations (percentage of responses) 16 14 12 Sector-weighted mean: 1.5% 10 8 6 4 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 ≥4.75 percent 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 0 ≤ -1.0 2 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* 13% 42% 24% 19% 1% -25 April May 10% 44% 26% 20% 1% -22 June 11% 32% 31% 24% 1% -14 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* April 14% 41% 33% 11% 0% -29 May 11% 43% 31% 13% 1% -25 June 10% 40% 36% 12% 1% -22 Up a lot (>5%) Mean Looking back, how do your UNIT COSTS compare with this time last year? Down (<-1%) About unchanged (-1% to 1%) Up somewhat Up moderately (1.1% to 3%) (3.1% to 5%) April 6% 18% 61% 12% 3% 1.8% May 5% 21% 57% 13% 4% 1.8% June 5% 22% 60% 12% 2% 1.7% 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. April 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) 6% 23% 42% 20% 9% 2.1% (2.3%) May 7% 25% 38% 20% 10% 2.0% (2.5%) June 8% 28% 39% 17% 8% 1.8% (2.6%) 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 September December March June Small (1–99 employees) -9.6% (92) -10.3% (100) -12.2% (91) -7.3% (87) Midsize (100–499 employees) -9.6% (43) -11.1% (45) -6.8% (42) -1.5% (47) Large (500+ employees) -4.9% (49) -2.1% (52) -3.3% (60) -2.2% (56) All -7.6% (184) -7.7% (197) -7.7% (193) -4.3% (190) Note: Percentages may not sum to 100 due to rounding. *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.