Carolinas Survey of Business Activity

June 30, 2011

Carolinas' Expansion Moderated Further in June; Outlook Softened But Remained Positive


The headline Carolinas Business Activity Index declined again in June although it remained in positive territory — barely. Such a reading suggests that the already slow pace of recovery in the Carolinas slowed even further. Sentiment appeared to be driven by weaker sales. The forward-looking six-month expectations indexes also declined further in June. The business conditions expectations index, while still positive, has been declining more or less steadily since the beginning of the year.

As was the case last month, the current labor demand indicators defied the decline in the general business conditions metric in June. The current labor demand indicators (number of employees and average workweek) remained positive and moved little over the month, indicating scant change in a slowly improving hiring environment. The current wage measure was unchanged from May to June. The labor demand expectations indexes moved down modestly over the month (from robust levels) in correlation with the drop in general business activity expectations. The index reflecting wage expectations also declined a bit. On the supply side, the current availability of skills needed index increased modestly in June while the comparable expectations metric decreased slightly.

The business spending indexes offered a mixed bag in June, with the equipment side holding up well and the services index declining notably. The business spending expectations indexes showed a broadly similar pattern. The prices paid and prices received indexes (both current and expected) eased a bit, but significant margin pressures persisted.

General Business Assessments

The current Carolinas business conditions index was positive for the seventh straight month in June, but barely. The index dipped to 3 from 8 in May, registering the lowest reading since October of last year. The headline index has been declining more or less steadily since the beginning of the year as respondents' perceptions of sales growth has softened. The current sales metric edged down to 1 in June from 2 the prior month.

The general business conditions expectations index also declined in June to 36 from 43 in May. While still solidly positive, the business conditions expectations index has been eroding since February. Not surprisingly, the sales expectations index dipped as well.

Labor Market Conditions

Somewhat surprisingly, the labor demand indicators held up well in June despite the softening seen in the general business conditions index. The current number of employees index increased to 16 from 12 in May and the average workweek moved up to 9 from 7. Despite a slight decline in June (to 23 from 26 in May), the expected number of employees index continued to suggest that respondents plan to boost hiring in the coming six months. The expected average workweek experienced a similar pattern.

The availability of skills indexes (the labor supply side indicators) were mixed in June, although the general narrative was largely unchanged from last month. The recession left considerable slack in the Carolinas' labor markets and respondents have not yet (at least on balance) seen labor shortages emerge, nor do they expect to see them over the course of the next six months. That slack is likely to keep downward pressure on wage growth.

Business Spending

The current capital spending indexes were positive again in June, but the business services spending index fell into negative territory for the first time since January. The current total capital expenditures index increased to 13 in June from 11 in May, while the current spending on equipment or software measure declined to 11 from 14. In contrast to the relative strength in capital spending, the current business services spending index declined to −1 from 9 in May.

On the expectations side, the trends were similar to those on the current spending side. The total capital spending expectations index dipped to 21 in June from 25 in May, while the equipment or software spending expectations index edged up to 25 from 24. Meanwhile, expectations for business services spending fell to 3 in June, a 12-point decline from May. This was the lowest such reading on business services spending plans since last October.


Survey respondents continued to report increases in input prices, although the rate of growth was slower. The current prices paid measure suggests that prices were rising at a 3.1 percent annualized pace in June, which is slightly lower than that reported for May. At the same time, the current prices received metric was down only slightly. Thus, current margin pressures were largely unchanged. Looking forward, respondents expect similar patterns to hold over the next six months with little change in the very tight margin environment.

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