According to the latest survey results, business activity in Maryland rebounded in April. The general business activity index rose to 29 from −5 last month. The April reading is the highest in the short history of the survey — dating back to September 2007 — and follows two months where activity was flat and fell slightly. Along with the increase in general business conditions, survey respondents reported an increase in sales, employment, and capital expenditures. Survey respondents indicated that margins continue to come under pressure with input costs rising faster than output prices. Expectations for activity in the near future remained strong with nearly 50 percent of respondents anticipating greater business activity six months from now.
Business activity increased sharply in April with the current business activity index jumping 34 points to 29. The April reading is the highest in the short history of the survey with over 40 percent of respondents indicating that activity increased from March to April. The sales index also rebounded, increasing to 22 after registering in the low single digits over the past two months. Although spending on business services was flat in April, respondents reported a notable pickup in capital expenditures. The total capital expenditures index rose to 11 while the index for spending on equipment or software rose to 17 — also the highest level in the history of the survey. Overall, despite high energy and commodity prices, the Maryland economy expanded in April at a solid pace.
The latest survey results suggest an improvement in labor market conditions. For most of last year the employees index was near 0, indicating no significant hiring by survey respondents. These results were fairly consistent with payroll employment data. Over the past three months, however, there has been a notable increase in the employees index, registering 9, 20, and 17 in February, March, and April, respectively. Roughly one in four survey respondents increased their workforce in April. In addition, survey respondents have indicated in recent months that there have been fewer workers available with the skills needed by their businesses — with the index averaging 2 over the past four months. The wages index has also increased over the past two months, increasing to 20 and 15 in March and April, respectively. Despite these more positive signals, the average workweek index edged only slightly higher to 6 from 3 in March.
Survey respondents remain positive about the near-term direction of the labor market, however that optimism has moderated some in recent months. Looking at respondents' expectations six months from now, the number of employees index edged lower to 18 from 24 last month while the average workweek index rose to 23, from 19. Roughly one-third of respondents anticipate expanding their workforce over the next six months.
Businesses reported that margins remained under pressure in April as input prices rose at a faster pace than prices received for final goods and services. However, price increases for inputs and outputs were more moderate than last month. Respondents reported input prices increased 2.6 percent in April, down from 3.2 percent last month, while output prices rose just 0.6 percent. Prices for inputs and final goods and services are expected to increase over the next six months.
Despite some moderation, expectations of economic activity six months from now remained solid in April. The expectations index for general business conditions decreased four points to 40 while the sales expectation index increased 13 points to 48. Roughly 50 percent of respondents anticipate an increase in business activity over the next six months while sixty percent anticipate an increase in sales revenue. In addition, expectations for future business spending on services and capital expenditures improved in April. The capital expenditures index increased to 34 from 26 last month. Over 40 percent of respondents anticipate increasing capital expenditures over the next six months.
R. Andrew Bauer