According to the latest survey results, business activity in Maryland declined modestly in March. The general business activity index moved into negative territory after registering 0 in February. The weakness over the past two months is in contrast to the prior three months where the general business conditions index averaged 21. Despite the decline in general business conditions, sales increased modestly in March for a second consecutive month after posting significant gains over the prior three months. Survey respondents reported higher prices for inputs and expectations for input prices over the next six months increased. There was little change for prices of final goods and services. Expectations for activity in the near future remained strong with 50 percent of respondents anticipating greater business activity six months from now.
Business activity declined modestly as a larger percentage of firms reported a decline in general business conditions than firms reporting an increase. As a result, the general business conditions index declined to −5 from 0 in February. The sales index was little changed at 4, up one point from 3 — a second consecutive weak reading after averaging 16 over the prior three months. In addition to the weakness in sales, respondents noted a decline in spending on business services and no increase in capital expenditures. Spending on business services and capital equipment had been moderately positive in recent months.
Despite weakness in business conditions and lackluster sales, the latest survey results suggest an improvement in labor market conditions in March. Participants reported a notable increase in employment and the workweek. The number of employees index jumped to 20 from 9 — the highest reading since 2007 — while the average workweek index rebounded to 3 from -7. In addition respondents reported wider gains in average wages in March.
Survey respondents remain positive about the near-term direction of the labor market. Looking at respondents' expectations six months from now, the number of employees index edged lower to 24 from 31 last month while the average workweek index registered 19, up slightly from 17. Nearly 40 percent of respondents anticipate expanding their workforce over the next six months while less than 10 percent expect to reduce their workforce.
Businesses reported that prices received for final goods and services were modestly higher in March while input prices rose at a notably faster pace. Respondents reported that the average price change for output prices increased by 1.0 percent for the month on an annualized basis. Input prices continued to increase with respondents indicating that the average price change was 3.2 percent in March, up from 2.3 percent last month. Input prices are anticipated to grow at a faster rate six months from now, rising to 4.0 percent. Final goods and services prices are also expected to strengthen. Respondents anticipate output prices to increase to a 1.5 percent rate six months from now.
Despite some moderation, expectations of economic activity six months from now remained solid in March. The expectations index for general business conditions declined 14 points to 44 and the sales expectation index declined by a sharp 21 points to 35. Still, over 50 percent of respondents anticipate an increase in business activity and sales revenue over the next six months. In addition, expectations for future business spending on services and capital expenditures remained solid. The capital expenditures index remained at 26 with 30 percent of respondents planning on increasing capital expenditures over the next six months.
R. Andrew Bauer