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BIE May 2014 Atlanta Fed Survey of Business Inflation Expectations For immediate release: May 15, 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 May, according to the Federal Reserve Bank of Atlanta’s most recent business inflation expectations (BIE) survey. The survey was conducted May 5–9 with 182 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 1.8 percent. Respondents’ sales levels compared to what they consider “normal” conditions improved somewhat, with approximately 55 percent of respondents indicating current sales levels are at or above normal. Profit margins declined somewhat, with roughly 47 percent of respondents indicating their profit margins are at or above normal, compared to 51 percent in April. Quarterly question: Factors influencing price change About 64 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 increased significantly from the last measure, taken in February. Thirty-seven 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 the full range over which panel members anticipate their number of employees (including part-time workers) could change over the next 12 months. Respondents provided estimates for five distinct scenarios and were then asked to assign percentage likelihoods to those scenarios. The firm size-weighted mean expectation for employment growth (weighted by firm size) over the year ahead was approximately 1.0 percent. Some 31 percent of respondents expect a net reduction in their number of employees over the next 12 months, 42 percent expect a net increase in their number of employees over the next 12 months, and 27 percent expect no change in their number of employees over the next 12 months. 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 1.9 1.5 Uncertainty 1.0 Year-ahead unit cost expectations 0.5 0.0 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-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 -18 2.5 1.8 2.0 1.5 -26 1.0 0.5 May-12 Nov-12 May-13 Nov-13 May-14 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 May-12 Nov-12 May-13 Nov-13 May-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 May-12 Aug-12 Sales Levels Nov-12 Labor Costs Feb-13 May-13 Margin Adjustments Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Aug-13 Nov-13 Productivity Feb-14 May-14 Non-Labor Costs Special Question Percentage of Firms Expecting Increase/Decrease/No Change in Number of Employees 12 Months from Now 45% 1.0% is expected employment growth over the next 12 months* 40% 35% 30% 25% 20% 15% 10% 5% 0% Expect decrease Expect increase *Note: Firm size-weighted expected growth rate Source: Atlanta Fed Business Inflation Expectations (BIE) Survey No change 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* March 12% 37% 33% 17% 1% -21 April 15% 33% 33% 17% 2% -21 May 12% 34% 33% 20% 1% -18 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* March 14% 46% 31% 9% 1% -32 April 14% 35% 40% 9% 2% -25 May 12% 41% 36% 11% 0% -26 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%) March 4% 21% 62% 9% 3% 1.7% April 5% 21% 61% 7% 5% 1.7% May 2% 22% 64% 9% 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) March 7% 28% 42% 16% 7% 1.8% (2.4%) April 6% 27% 44% 16% 8% 1.9% (2.4%) May 6% 26% 42% 19% 7% 1.9% (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† November 0% 2% 33% 55% 10% 35 February 0% 3% 30% 56% 9% 36 May 0% 1% 34% 54% 10% 37 November 0% 6% 28% 59% 7% 34 February 1% 4% 29% 57% 9% 34 May 1% 1% 24% 64% 10% 40 November 0% 19% 62% 16% 2% 0 February 1% 21% 61% 16% 1% -3 May 0% 14% 69% 15% 1% 1 November 1% 18% 52% 27% 2% 5 February 0% 14% 59% 27% 0% 7 May 0% 11% 59% 27% 2% 10 November 0% 13% 47% 36% 3% 15 February 1% 17% 41% 37% 4% 12 May 0% 11% 52% 35% 2% 13 Labor Costs Non-Labor Costs Productivity Margin Adjustments Sales Levels 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.