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BIE December 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: December 19, 2014 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses were 1.9 percent in December, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted December 8–12, with 201 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 1.9 percent over the next 12 months. Inflation uncertainty was unchanged at 2.4 percent. Firms also report that, compared to this time last year, their unit costs are up 1.7 percent. Respondents’ sales levels, compared to what they consider “normal” conditions, remained steady, with 59 percent of respondents indicating current sales levels are at or above normal. Profit margins were virtually unchanged, with roughly 48 percent of respondents indicating their profit margins are at or above normal. 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 2.7 percent below normal compared to 3.6 percent below normal in September. Large firms (500 or more employees) and small firms (fewer than 100 employees) reported sales levels were 1.2 and 4.6 percent below normal, respectively. For the first time, midsize firms’ (100-499 employees) reported a positive sales gap, with sales levels 0.6 percent above normal. Special question: Year-ahead change in average price The median year-ahead price change expectation was 2.9 percent, and the mean expectation was 4.5 percent. Firms, on average, are assigning a small chance that their prices will rise significantly next year. Otherwise, price adjustments are expected to be more modest. Moreover, on average, respondents were more uncertain about their average price change expectations than their unit cost change expectation, as reflected by the average individual’s variance of 4.7 and 2.4, respectively. Please see page 3 for a breakdown of the results. 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 2.5 2.4 2.0 1.9 1.5 1.0 Uncertainty Year-ahead inflation expectations 0.5 0.0 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-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) 3.0 10 Sales levels -10 2.5 above normal below normal 0 -11 Profit margins -21 -20 -30 2.0 1.5 1.7 1.0 0.5 0.0 -40 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 -2.5 (38) Source: Atlanta Fed Business Inflation Expectations (BIE) Survey -3.4 (208) Quarterly Question ######## Dec-13 Jun-14 ######## ######## Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Dec-12 Jun-13 Dec-14 Mean Percent Above/Below Normal Sales Levels 4 Large firms (500+ employees) 2 Midsize firms (100–500 employees) Small firms (1–99 employees) All firms (weigthed by sector GDP contribution) 0 0.6 -1.2 -2 -2.7 -4 -6 -4.6 -8 -10 -12 -14 Dec-12 Mar-13 Jun-13 Sep-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Special Question Distribution of Year-Ahead Price Change Expectations 9 8 Number of responses 7 6 5 4 3 2 1 0 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Price change expectation (percent) Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 3.0 3.5 4.0 4.5 5.0 How do your SALES LEVELS compare with sales levels during what you consider to be “normal” times? Much less Somewhat less Somewhat greater About normal Much greater Diffusion index* October 11% 33% 35% 19% 2% -16 November 9% 30% 36% 23% 2% -11 December 7% 34% 35% 22% 2% -11 How do your current PROFIT MARGINS compare with “normal” times? October Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* 13% 40% 32% 14% 0% -26 November 11% 40% 34% 13% 2% -23 December 11% 41% 28% 19% 1% -21 Up moderately (3.1% to 5%) 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 (1.1% to 3%) October 2% 24% 56% 12% 5% 1.9% November 3% 20% 59% 14% 4% 1.9% December 4% 21% 62% 10% 3% 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. October 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) 7% 25% 41% 19% 8% 1.9% (2.4%) November 7% 24% 41% 19% 9% 2.0% (2.4%) December 7% 25% 43% 17% 8% 1.9% (2.4%) 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 Dec-13 Mar-14 Jun-14 Aug-14 Sep-14 Dec-14 Small (1–99 employees) -8.6 (85) -9.1 (83) -7.8 (131) -6.1 (117) -7.6 (89) -4.6 (100) Midsize (100–499 employees) -2.2 (49) -5.6 (46) -2.5 (44) -2.5 (38) -0.1 (39) 0.6 (39) Large (500+ employees) -3.8 (69) -3.0 (67) -1.7 (61) -1.2 (53) -2.2 (57) -1.2 (58) All -4.8 (203) -5.7 (196) -3.7 (236) -3.4 (208) -3.6 (185) -2.7 (197) 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.