Carolinas Survey of Business Activity

Oct. 25, 2012

Business Activity Softened in October, Expectations Were Lowered


After firming somewhat in September, the region's economic expansion appeared to soften a bit as we entered the final quarter of the year, according to the results of our Carolinas Survey of Business Activity. The current general business conditions index remained positive in October, although it was down six points from September. The current sales measure saw a very similar slide. Looking forward, with the expansion lacking clear momentum, participants have lowered their expectations for future activity as well.

The lack of a clear signal that the economy is improving has left many employers in the region sitting on the sidelines. Our current labor demand indicators, number of workers and average hours, have been moving in a narrow range around 0 over the past few months, suggesting no increase or decrease. However, expectations for labor demand have been scaled back somewhat.

As is the case with hiring, business spending and spending plans are largely determined by firms' expectations for economic activity down the road. And as those general expectations have moderated, business spending and spending plans have been curtailed as well. Two of the three current business spending metrics were in negative territory in October, while the third declined but remained slightly positive. The corresponding business spending expectations measures were also softer, on balance. The pricing metrics suggested a little more pressure on current profit margins as firms experienced a modest increase in prices paid but little gain in prices received. Price expectations did not change much.

General Business Assessments

General current business conditions appeared to soften somewhat in the Carolinas during October, although the expansion continued. Our current general business conditions index, which increased in September for the first time in five months, eased back to 2 in October from 8 a month earlier. A big factor weighing on respondents' minds was a slowdown in sales growth as the current sales/shipments index fell to −1, from 6 in September.

As is often the case, the deterioration in sentiment about current business conditions weighed on firms’ expectations for future activity. The expected general business conditions index decreased to 15 in October (its lowest reading in more than two years) from 23 in September. Meanwhile, the expected sales/shipments metric inched down to 13 from 15.

Labor Market Conditions

Given the slowdown in the general economic expansion, it is not surprising that the survey's labor demand measures continued to signal softness. The current number of workers index came in at −1 in October, which is right in line with the readings of the prior three months. With the index so close to 0, or breakeven, it appears that firms have very little appetite to hire (or fire) workers at this point. The average hours measure actually edged up above breakeven in October, although its average over the past two months has been 0.

Looking forward, expectations for slower economic growth have translated to a lower trajectory for labor demand growth as well. The expected number of workers index fell to 0 in October, its lowest reading since June 2009. The availability of skills measures, current and expected, remained in positive territory.

Business Spending

The current business spending measures and, to a lesser extent, the expected business spending indexes softened recently. Our current business services spending index fell to −7 in October from −4 a month earlier. Meanwhile, on the equipment side, the current total capital expenditures index dropped ten points to −5. Current spending on equipment and software was a little more resilient, as the measure reflecting such spending dipped six points, but remained positive at 3.

On the expectations side, business spending plans were a little firmer. The expectations metric for business services spending eked out a small positive reading in October after residing in slightly negative territory the prior two months. However, the minor movement does nothing to alter the general narrative that business service spending plans remained weak. The expected total capital spending and expected equipment or software spending measures eased back to 4 and 7, respectively.


Our current prices paid index increased slightly in October, to 2.36 percent from 2.24 percent in September. The current prices received index dipped one-tenth to 1.49 percent in October. Combined, these readings suggest a little more pressure on margins recently.

On balance, respondents expect prices to edge higher in coming months. The expected prices paid measure rose to 2.73 percent in October from 2.65 percent, while the expected prices received index inched up to 1.96 percent from 1.93 percent.

Survey Participation, Report, and Data Questions

Jeannette Plamp
Associate Regional Economist
(804) 697-8152