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BIE March 2013 Atlanta Fed Survey of Business Inflation Expectations For immediate release: March 22, 2013 Contact: Jean Tate, 404-498-8035 or jean.tate@atl.frb.org The year-ahead inflation expectations of businesses were unchanged at 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 March 11–15 with 193 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 1.9 percent over the next 12 months, unchanged from the February measure, and roughly in line with the recent year-ahead inflation forecasts of private economists. Inflation uncertainty declined slightly to 2.3 percent in March. Firms also report that, compared to this time last year, their unit costs are up 1.7 percent. Sales levels improved considerably, tying the March 2012 measure, the highest since the series began in October 2011. Profit margins, however, improved only slightly. Both measures remain below normal. Quarterly question: Percent above/below normal unit sales levels On average (weighted by industry share of GDP), respondents indicated that unit sales are approximately 7.7 percent below normal, which is unchanged from the December measure. Despite stability in the aggregate measure, there remain wide variations across firm size. Midsize firms noted a considerable narrowing of their sales gap (-11.1 percent in December to -6.8 percent in March) while small firms’ sales gap estimate continued to grow (-10.3 percent in December to -12.2 percent in March). Large firms remained fairly stable with an average gap of around 3 percent below normal. Special question: Percentage rise in unit costs that would trigger a price increase The March special question asked respondents to list the percentage their unit costs would have to increase before they would increase the prices of their products and/or services. While the median response indicated that unit costs would have to increase by at least 3 percent to trigger an increase in the prices of their products and/or services, there was a very wide range of cost pressure thresholds. For more information and interactive charts, visit the BIE survey site at www.frbatlanta.org/research/inflationproject/bie/. 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* January 14% 43% 29% 14% 0% -29 February 17% 41% 29% 13% 1% -30 March 10% 41% 31% 16% 1% -22 How do your current PROFIT MARGINS compare with “normal” times? Much less Somewhat less About normal Somewhat greater Much greater Diffusion index* January 14% 45% 35% 6% 0% -34 February 16% 39% 36% 9% 0% -31 March 10% 48% 32% 10% 0% -29 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%) Up moderately (3.1% to 5%) Up a lot (>5%) Average January 7% 24% 54% 11% 4% 1.6% February 6% 23% 56% 13% 2% 1.7% March 4% 21% 61% 10% 4% 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. Down (<-1%) About unchanged (-1% to 1%) Up somewhat (1.1% to 3%) Up moderately (3.1% to 5%) Up a lot (>5%) Average (Variance) January 6% 28% 42% 17% 7% 1.8% (2.4%) February 5% 26% 43% 17% 8% 1.9% (2.4%) March 6% 25% 43% 17% 8% 1.9% (2.3%) Quarterly Question: By roughly what percent are your firm's sales levels ABOVE/BELOW “normal”? Number of responses Firm size Average percent above/below normal September December March September December March Small (1–99 employees) 92 100 91 -9.60% -10.29% -12.16% Midsize (100–499 employees) 43 45 42 -9.60% -11.11% -6.83% Large (500+ employees) 49 52 60 -4.90% -2.12% -3.25% All 184 197 193 -7.60% -7.66% -7.65% 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. Monthly Questions Year-Ahead Inflation Expectations and Uncertainty (percent) 3.5 3.0 2.5 2.3 2.0 1.9 1.5 1.0 Uncertainty Year-ahead unit cost expectations 0.5 0.0 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-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 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 (percent) (diffusion index, 0+ = greater than normal times) 3.5 3.0 Sales levels Profit margins -22 -29 2.5 2.0 1.7 1.5 1.0 0.5 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey 0.0 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Quarterly Question Percent Above/Below Normal Sales Levels 6 4 2 0 ‐2 ‐4 ‐6 ‐8 ‐10 ‐12 ‐14 September December March ‐2.1 ‐3.3 ‐4.9 ‐6.8 ‐9.6 ‐7.6 ‐7.7 ‐7.7 ‐9.6 ‐10.3 ‐12.2 Small (1–99 employees) ‐11.1 Midsize (100–499 employees) Source: Atlanta Fed Business Inflation Expectations (BIE) Survey Large (500+ employees) All (weighted by sector contribution to GDP) Special Question By what percentage would your unit costs have to increase for you to increase the prices of your products and/or services? (percentage of responses) 16 14 12 10 8 6 4 2 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Percent unit cost increase that would trigger price increase Source: Atlanta Fed Business Inflation Expectations (BIE) Survey > 5% Unsure