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An in-depth look at regional and national economic trends that matter to the Fifth District. Updates will be published several times a month.

Regional Matters

February 28, 2018

New Indexes in Monthly Business Surveys

Article by: Roisin McCord

With the release of our February 2018 survey results, we began to report a few new variables in our Fifth District Survey of Manufacturing Activity and Fifth District Survey of Service Sector Activity. The additional indexes reflect questions that we have been asking respondents since December 2010.

The new indexes include: availability of necessary skills, capital expenditures, spending on business services, spending on equipment and software, and local business conditions. As with our other survey variables, we ask our monthly survey participants whether each of these variables has increased (improved), decreased (deteriorated), or had no change from the previous month.

We then create a diffusion index out of the responses, such that a positive value indicates that more firms reported an improvement than a deterioration, and a negative value indicates that more firms reported a deterioration. In addition to reporting new variables, we began to report more indicators around business owners’ expectations for conditions six months from the time of the survey.

So what can these new indexes tell us? The availability of skills index is an important indicator of businesses’ ability to meet their labor needs. A high skills index means it is reportedly easier for firms to find the workers that they need. Recently, this index has generally remained below zero, indicating that more firms are having difficulty finding workers with the skills they need. (See chart below)

This is corroborated by comments from firms across the manufacturing and services sectors that indicate challenges finding qualified workers and an increased need to raise wages, find other ways to attract workers, or simply produce with fewer workers. The availability of necessary skills index will enable us to track a measure of the Fifth District labor market that goes beyond employment and wages.

We are also now reporting indexes on firms’ spending: capital expenditures, equipment and software expenditures, and business services expenditures (for example, consulting fees). These indexes provide an additional measure of the health of a firm and the economy, since increased spending may suggest that firms are both stable and confident enough to invest in their businesses.

Examining these variables along with employment and wages can help us better understand how District firms allocate resources. Interestingly, the three measures of spending appear to trend similarly since 2011, although the index for business services expenditures has been consistently below the other two spending indexes for both service sector and manufacturing firms.

The index for local business conditions furthers our understanding of the conditions that businesses face in their markets. Although the service sector and manufacturing conditions indexes tend to move together, the index in the manufacturing survey has trended lower than that in the service sector.

Finally, we began to report businesses’ expectations for six months out for more of our variables. Looking at current and expected indexes together provides a more complete picture of the economic environment and business sentiment. This can offer some insight into business decisions and what we can expect to see in the near future.

We hope that these new indicators will enrich the information provided by our monthly surveys and provide our businesses and constituents with a more comprehensive view of business conditions within the Fifth District.


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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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Joseph Mengedoth
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Sonya Ravindranath Waddell
Director of Regional Economics
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