According to the latest survey results, business activity rose solidly in May. The general business activity index registered 19, down slightly from 25 in April. Businesses reported an increase in sales, inventories, and customer traffic. However, labor demand and pricing conditions remained weak and businesses reported that investment activity was down slightly. Expectations for activity six months from now remained strong with a solid majority of survey respondents anticipating increases in general business activity. Respondents expect sales, labor demand, prices and investment to increase over the next six months.
The latest survey results indicated that business activity increased solidly in May as the general business conditions index registered 19, down slightly from 25 last month. There was some moderation in the specific indicators of activity. The sales and customer traffic or inquiries indexes edged lower to 15 and 30, respectively, from 25 and 36. Despite the moderation, both indicate a solid increase in sales and customer activity in May. Investment in equipment and software dropped back into negative territory after increasing for the first time since the beginning of the recession. However, the product inventories index rose for the second straight month, suggesting that businesses are more comfortable with current inventory levels and are beginning to increase inventories in anticipation of stronger sales. The business activity index for the state increased to 36 from 29 last month while the national index was unchanged at 36.
Despite improvements in payroll employment and the decline in the unemployment rate recently, the survey continues to indicate a weak labor market. The businesses surveyed reported a decline in employment for the month of May along with a slight improvement in the workweek. The number of employees index declined to −9 from 0 last month while the index of weekly hours edged down to 4 from 9. Despite the weak labor conditions, the index for average wages remained positive at 4, down slightly from last month.
Survey respondents anticipate an increase in business activity over the next six months that will result in a greater demand for labor. However, expectations for future labor demand were weaker than in recent months. Looking at respondents' expectations six months from now, the number of employees index declined 11 points to 15 while the hours worked index decreased 23 points to 12. Roughly one-third of respondents indicated that they will be expanding their workforce over the next six months.
Businesses reported that prices received for final goods and services continued to decline while prices for materials and energy continued to increase in May. The prices received index edged up to −12 from −16 while the prices paid for materials index declined to 16 from 25. The energy price index dropped 18 points to 25. Firms continue to expect pricing conditions to improve with final goods prices rising over the next six months. There are widespread expectations for prices of materials and energy to also increase over the next six months.
Expectations of economic activity six months from now moderated but remained solid in May. The expectations index for general business activity at respondent's companies dropped 20 points to 35. Roughly 50 percent of respondents anticipate greater business activity six months from now while 15 percent expect business activity to decline. Expectations for sales, customer traffic and investment also moderated but remained positive. Expectations of economic activity for the state and national economy also moderated this month, with the indexes declining to 40 from 59 and 69, respectively.
R. Andrew Bauer