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BIE February 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: February 12, 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 February, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted February 3–7 with 200 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 virtually unchanged at 2.4 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 showed no improvement, with approximately 49 percent indicating current sales levels are at or above normal, the same percentage as in January. Profit margins showed some improvement, with roughly 48 percent of respondents indicating their profit margins are at or above normal, compared to 45 percent in January. Quarterly question: Factors influencing price change About 65 percent of respondents expect labor costs to put moderate or strong upward pressure on their prices over the next 12 months. Respondents’ expectations regarding the influence of non-labor costs on prices declined in November, the prior measure, and remained at this lower level this month. Forty-one percent of respondents expect sales levels to put moderate or strong upward pressure on prices in the year ahead. The majority of firms expect productivity and margin adjustments to have little or no influence over prices in the next 12 months. Special question: Year-ahead employment outlook The question assessed firms’ expected changes in their number of employees (including part-time workers) 12 months from now. About 45 percent of firms expect to add to their number of employees over the coming year while approximately 14 percent expect to have fewer employees. Roughly 42 percent of firms expect no change in their number of employees. Firms expecting to increase their number of employees anticipate an increase of approximately 5 percent; those that expect a decrease anticipate a decline of approximately 4 percent. Respondents’ aggregate number of employees (current) and the aggregate number of employees they expect to have 12 months from now yield an expected rate of employment growth of approximately 1.8 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) 3.5 3.0 2.4 2.5 2.0 2.0 1.5 Uncertainty 1.0 Year-ahead unit cost expectations 0.5 0.0 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 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) 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 3.5 3.0 Sales levels Profit margins -21 2.5 1.8 2.0 1.5 -24 1.0 0.5 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Projecting ahead, over the next 12 months, how do you think the following five common influences will affect the prices of your products and/or services? (diffusion index, 0+ = upward influence on prices) 50 45 40 35 30 25 20 15 10 5 0 -5 Feb-12 May-12 Sales Levels Aug-12 Labor Costs Nov-12 Feb-13 Margin Adjustments Source: Atlanta Fed Business Inflation Expectations (BIE) Survey May-13 Aug-13 Productivity Nov-13 Feb-14 Non-Labor Costs Special Question Percentage of Firms Expecting Increase/Decrease/No Change in Number of Employees 12 Months from Now 6% 50% 45% Expected Percentage Change in Number of Employees 12 Months from Now 5.3% 44.6% 41.6% 40% 4% 1.8% - expected employment growth* 35% 2% 30% 0% 25% 20% -2% 14.2% 15% 10% -4% -4.0% 5% -6% 0% Increase expected Decrease expected No change expected Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Firms expecting net gain Firms expecting net loss *Note: Calculated using firms' aggregate employment levels. Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 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* December 12% 35% 33% 19% 2% -18 January 13% 39% 34% 14% 1% -24 February 12% 39% 28% 20% 1% -21 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* December 15% 35% 37% 12% 1% -26 January 16% 39% 34% 10% 1% -29 February 10% 42% 35% 13% 0% -24 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%) December 4% 25% 53% 15% 3% 1.8% January 6% 24% 54% 13% 4% 1.7% February 5% 23% 54% 13% 4% 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) December 6% 26% 44% 17% 7% 1.9% (2.3%) January 6% 26% 43% 16% 8% 1.9% (2.3%) February 6% 24% 43% 19% 8% 2.0% (2.4%) Projecting ahead over the next 12 months, how do you think the following five common influences will affect the prices of your products and/or services? Strong downward influence Moderate downward influence Little/no influence Moderate upward influence Strong upward influence Diffusion Index† Labor Costs August 0% 1% 34% 57% 8% 36 November 0% 2% 33% 55% 10% 35 February 0% 3% 30% 56% 9% 36 Non-Labor Costs August 0% 1% 29% 58% 12% 40 November 0% 6% 28% 59% 7% 34 February 1% 4% 29% 57% 9% 34 0 Productivity August 0% 19% 63% 16% 2% November 0% 19% 62% 16% 2% 0 February 1% 21% 61% 16% 1% -3 Margin Adjustments August 1% 11% 60% 26% 2% 8 November 1% 18% 52% 27% 2% 5 February 0% 14% 59% 27% 0% 7 Sales Levels August 1% 16% 46% 34% 3% 11 November 0% 13% 47% 36% 3% 15 February 1% 17% 41% 37% 4% 12 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. †The diffusion index is calculated such that each response of strong downward influence is assigned a value of –100; moderate downward influence is assigned a value of –50; little/no influence, 0; moderate upward influence, 50; and strong upward influence, 100. Therefore, a positive index value indicates that overall prices are being influenced upwards, on average, and a negative index value indicates that prices are being influenced downwards on average.