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BIE June 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: June 20, 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 June, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted June 9–13 with 242 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 2.4 percent. Firms also report that, compared to this time last year, their unit costs are up 1.9 percent. Respondents’ sales levels compared to what they consider “normal” conditions improved somewhat, with approximately 57 percent of respondents indicating current sales levels are at or above normal. Profit margins declined somewhat, with roughly 44 percent of respondents indicating their profit margins are at or above normal, compared to 47 percent in May. Quarterly question: Percent above/below normal unit sales levels On average (weighted by industry share of GDP), respondents indicated their unit sales gap (percentage below normal) was approximately 3.7 percent, compared to 5.7 percent below normal in March. Since the March measure, firms of all sizes have experienced a narrowing of their unit sales gap. Large firms’ (500 or more employees) unit sales gap narrowed 1.3 percentage points to 1.7 percent below normal, on average. Midsize firms’ (100–499 employees) unit sales gap narrowed by 3.1 percentage points to 2.5 percent below normal, on average. Small firms’ (less than 100 employees) unit sales gap narrowed by 1.3 percentage points to 7.8 percent below normal, on average. Special question: Year-ahead unit sales expectations The question assessed the full range over which panel members anticipate their unit sales levels could change over the next 12 months. Respondents provided estimates for three distinct scenarios and were then asked to assign percentage likelihoods to those scenarios. The mean expectation for unit sales level growth (weighted by respondents’ likelihood assignments) over the year ahead was approximately 4.6 percent. 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 2.0 1.5 1.0 Uncertainty 0.5 0.0 Year-ahead inflation expectations 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 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 above normal 2.5 below normal Sales levels 1.9 2.0 Profit margins -17 1.5 1.0 -27 0.5 0.0 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Mean Percent Above/Below Normal Sales Levels 4 Large firms (500+ employees) 2 0 Midsize firms (100–500 employees) Small firms (1–99 employees) All firms -1.7 -2.5 -3.7 -2 -4 -6 -7.8 -8 -10 -12 -14 Sep-12 Dec-12 Mar-13 Jun-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Sep-13 Dec-13 Mar-14 Jun-14 Special Question Projecting ahead, over the next 12 months, please provide the approximate low case, medium case, and high case percentage change in your firm's unit sales levels. mean percentage change 14 11.2 12 10 8 mean: 4.6 percent* 6 4.5 4 2 0 -2 -4 -6 -3.5 Low case Medium case High case *This represents the mean of all respondents' individual probability-weighted means. Source: Atlanta Fed Business Inflation Expectation (BIE) Survey Please assign a percentage likelihood to the low case, medium case, and high case percentage unit sales level changes selected above. mean likelihood 60 51.7 50 40 30 24.5 23.8 20 10 0 Low case Source: Atlanta Fed Business Inflation Expectation (BIE) Survey Medium case High case How do your SALES LEVELS compare with sales levels during what you consider to be “normal” times? April Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* 15% 33% 33% 17% 2% -21 May 12% 34% 33% 20% 1% -18 June 11% 32% 38% 19% 0% -17 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* April 14% 35% 40% 9% 2% -25 May 12% 41% 36% 11% 0% -26 June 10% 46% 31% 13% 0% -27 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 5% 21% 61% 7% 5% 1.7% May 2% 22% 64% 9% 3% 1.8% June 2% 22% 61% 10% 5% 1.9% 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% 27% 44% 16% 8% 1.9% (2.4%) May 6% 26% 42% 19% 7% 1.9% (2.4%) June 5% 24% 45% 18% 8% 2.0% (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 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Small (1–99 employees) -12.2% (91) -7.3% (87) -7.4 (92) -8.6 (85) -9.1 (83) -7.8 (131) Midsize (100–499 employees) -6.8% (42) -1.5% (47) -6.6 (48) -2.2 (49) -5.6 (46) -2.5 (44) Large (500+ employees) -3.3% (60) -2.2% (56) -2.5 (66) -3.8 (69) -3.0 (67) -1.7 (61) All -7.7% (193) -4.3% (190) -5.6 (206) -4.8 (203) -5.7 (196) -3.7 (236) 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.