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BIE April 2013 Atlanta Fed Survey of Business Inflation Expectations For immediate release: April 17, 2013 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses increased to 2.1 percent, from 1.9 percent in March, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted April 8–12 with 189 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 2.1 percent over the next 12 months, roughly in line with the recent year-ahead inflation forecasts of private economists. Inflation uncertainty was unchanged, remaining at 2.3 in April. Firms also report that, compared to this time last year, their unit costs are up 1.8 percent. Sales levels weakened slightly from the March reading, which was at the upper bound of the series. Profit margins remained the same. Both profit margins and sales levels remain below normal. Quarterly question: Long-term inflation expectations Over the long term, that is, per year over the next five to 10 years, respondents expect unit costs to increase 2.9 percent, on average, down slightly from the January reading of 3.1 percent. Respondents’ uncertainty (variance) regarding this expectation continues to decline, reaching a new low of 2.2 percent. Special question: Year-ahead unit sales level growth expectations Respondents’ average year-ahead unit sales level growth expectations increased to 1.8 percent, from 1.2 percent noted last November. Firms’ uncertainty about this forecast declined (with a variance of 2.6 percent compared to 2.8 percent in November). Firms indicated a lower probability (37 percent) that unit sales levels would be flat or decline over the next 12 months compared to the probability in November (50 percent). Firms assigned a greater probability (30 percent) to the likelihood of unit sales levels increasing (3.1 percent or more over the next 12 months) compared to the probability they gave in November (20 percent). Most sectors noted higher year-ahead unit sales level expectations. However, manufacturing, which had relatively strong unit sales level expectations in November, was virtually unchanged at 1.7 percent. Please see the chart on page 3 for more detail. 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 2.5 2.3 2.1 2.0 1.5 Uncertainty 1.0 Year-ahead unit cost expectations 0.5 0.0 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Unit Costs Compared to This Time Last Year Sales Levels and Profit Margins Compared to Normal Times (percent) (diffusion index, 0+ = greater than normal times) 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 3.5 3.0 Sales levels Profit margins 2.5 1.8 2.0 -25 1.5 -29 1.0 0.5 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Long-Term Inflation Expectations and Uncertainty (percent, per year over the next five to 10 years) 3.5 3.0 2.9 2.5 2.2 2.0 1.5 Long-term Unit Cost Expectations 1.0 Uncertainty 0.5 0.0 Apr-12 Jul-12 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Oct-12 Jan-13 Apr-13 Special Question Subjective Year-ahead Unit Sales Probabilities (average percent probability for each outcome, industry weighted) 40 Nov-12 35 Apr-13 34 April 2013 Mean: 1.8% 32 Nov-12 Mean: 1.2% November 2012 Mean: 1.2% 29 30 April-13 Mean: 1.8% 26 25 20 19 16 13 15 11 11 10 7 5 0 Sales levels down (<-1%) Sales levels about unchanged (-1% to 1%) Sales levels up somewhat (1.1% to 3%) Sales levels up significantly (3.1% to 5%) Sales levels up very significantly (>5%) Note: Responses weighted by industry share of GDP. Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Year-ahead Unit Sales Level Growth Expectations (percent) 2.5 Nov-12 2.0 2.0 1.8 1.8 1.7 1.5 1.3 1.1 1.8 1.7 1.5 1.5 1.2 1.0 1.0 0.5 0.5 0.0 2.2 Apr-13 Construction and Real Estate Finance and Insurance General Services Manufacturing Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Retail and Wholesale Trade Other All Respondents 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* February 17% 41% 29% 13% 1% -30 March 10% 41% 31% 16% 1% -22 April 13% 42% 24% 19% 1% -25 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* February 16% 39% 36% 9% 0% -31 March 10% 48% 32% 10% 0% -29 April 14% 41% 33% 11% 0% -29 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%) February 6% 23% 56% 13% 2% 1.7% March 4% 21% 61% 10% 4% 1.7% April 6% 18% 61% 12% 3% 1.8% Up somewhat Up moderately (1.1% to 3%) (3.1% to 5%) 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. 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) February 5% 26% 43% 17% 8% 1.9% (2.4%) March 6% 25% 43% 17% 8% 1.9% (2.3%) April 6% 23% 42% 20% 9% 2.1% (2.3%) Quarterly Question: Projecting ahead, to the best of your ability, please assign a percent likelihood to the following changes to unit costs per year over the next FIVE TO 10 years. Unit costs down (<-1%) Unit costs about unchanged (-1% to 1%) Unit costs up somewhat (1.1% to 3%) Unit costs up significantly (3.1% to 5%) Unit costs up very significantly (>5%) Mean 4% 11% 38% 29% 17% 2.9% (2.8%) April (152) 4% 12% 36% 30% 18% 3.0% (2.6%) July (153) 4% 15% 36% 26% 19% 2.8% (2.9%) October (196) 4% 13% 36% 30% 17% 2.9% (2.7%) January (196) 3% 12% 32% 28% 23% 3.1% (2.5%) April (189) 4% 12% 38% 26% 20% 2.9% (2.2%) Month (number of responses) February (89) 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.