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Carolinas Survey of Business Activity

March 30, 2017

Current Business Conditions Improved Again in March; Measures of Hiring Surged

Overview

Indexes reflecting current economic conditions improved again in March, according to the results of the monthly Carolinas Survey of Business Activity, and respondents remained mostly optimistic about the near term. The current general business conditions measure increased for the fourth month in a row, reaching its highest level in nearly five years. The current sales indicator eased back a bit from February's reading, but remained in clear positive territory. Looking forward, measures reflecting expectations for general business conditions and sales six months from now moved lower in March, but from extraordinarily high levels a month earlier.

Labor demand appeared to increase in March, but labor availability remained a challenge according to the survey results. The current number of workers index jumped in the latest reading, to the highest level in the history of the series, and the current average weekly hours indicator increased for the second month in a row. However, the current availability of skills measure moved further into negative territory, suggesting that workers were more difficult to find, and the current wages metric jumped.

In spite of increases in the indicators reflecting general business conditions, each of the three current business spending indexes (business services, total capital expenditures, and equipment or software) moved lower in March, although each remained positive. The same is true for all of the corresponding expectations metrics.

Inflation pressures remained modest but appeared to increase in March. Both of the survey's measures of current price increases (paid and received) moved up modestly, to their highest averages in at least two and a half years, as did the corresponding expectations measures.

General Business Assessments

Business sentiment appeared to improve again in the Carolinas during March. The current general business conditions index jumped to 30 this month (its highest reading since April 2012) from 20 in February. At the same time, the current sales metric came in at a solid reading of 18, although it decreased four points from a month earlier. The expected general business conditions measure also moved down modestly in March, to 48 from 52, but remained near its highest level in two years. The expected sales metric fell to 49 from 59.

Labor Market Conditions

Survey responses indicated that labor demand increased in March, but shortages of labor persisted. The current number of workers index surged to 22 this month (from 6 in February), its highest reading in the history of the series, which dates back to January 2008. Moreover, the current average workweek measure moved up three points, to 19, its highest level in a year.

Expectations for labor utilization six months from now (number and hours) point to more hiring ahead. That said, skills shortages continued and are expected to persist in the near future. And the current wage measure moved up to its highest level in the history of the series (30) while the expected wage metric remained very close to its historic high.

Business Spending

In spite of the more upbeat assessment of current business conditions, the survey’s business spending metrics declined. Each of the three current measures was down in March with the current business services spending index experiencing the largest decline (to 7, from 15 in February). The current total capital expenditures indicator moved down to 20 from 23, while the current equipment/software spending metric inched down to 16 in March from 17 in February.

The corresponding business spending expectations indicators all moved lower for the second month in a row in March. The expected equipment/software spending measure dropped by 10 points, the expected total capital expenditures metric fell by nine points, and the expected business services spending index decreased by five points from a month earlier.

Prices

The survey's readings on average price increases suggested a little more inflationary pressure in March, although the measures remained low by recent historical standards. The average increase in current prices paid moved up to 1.96 percent from 1.44 percent a month earlier, and the average increase in current prices received accelerated to 1.69 percent in March from 1.01 percent in February.

Survey respondents also anticipate that prices will rise a little faster in coming months as well. The average expected increase in prices paid moved higher in March, to 2.23 percent from 2.03 percent in February, while the average expected increase in prices received moved up by 50 basis points, to 1.91 percent.

Index Table

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Regional Survey Team (804) 697-8702