According to the latest survey results, business activity in Maryland improved moderately in March. The general business activity index registered 10 for the month, up two points from February. The sales index dropped, however, to −4 from 16 last month. Business expenditures on services and capital investment were modest. Labor market conditions improved notably in March for a second consecutive month. Profit margins continued to come under pressure with increases in input costs outpacing output prices. Expectations for activity in the near future remained positive but softened somewhat from February's survey results. Forty-eight percent of respondents anticipated greater business activity six months from now while 13 percent expected activity to decline.
Business activity improved moderately in March as the general business activity index registered 10, edging higher by two points from last month. Sales, however, fell sharply relative to last month, with the index dropping twenty points to a reading of −4. Business spending was modest in March. Spending on business services was essentially flat, with the index registering 2 for the month. Total capital expenditures and investment spending on equipment or software rose modestly in March. Both indexes registered 6, down two and six points, respectively, from February.
Despite lackluster business activity, labor market conditions improved notably in March. For a second consecutive month the survey suggested significant improvement in labor market conditions. In February, the employment index registered 14 — a jump of twenty-four points from January's reading of −10 — as 28 percent of respondents indicated that they added workers for the month while 14 percent reported a decline. In March, the index rose to 22 as 30 percent of respondents indicated that they added workers while just 8 percent indicated that they reduced workers. In addition, the number of hours worked increased—the average workweek index increased by nine points to a reading of 13. Despite considerable slack in the labor market, respondents continued to report higher wages in March. The wage index registered 13, down seven points from last month.
In contrast to the positive results for current activity in March, expectations for future labor market conditions deteriorated. The number of employees expectations index dropped nineteen points to 6. The percentage of firms anticipating hiring over the next six months declined six points to 29 percent while the number of firms anticipating shedding workers over that period increased thirteen points to 23 percent. Expectations for hours worked held steady, however with the average workweek index edging lower by one point to 15.
Businesses reported that margins remained under pressure in March with increases in input prices outpacing output prices. Respondents reported that input prices rose 2.1 percent in March on an annualized basis, down from 2.6 percent in February. Output prices increased 1.3 percent at an annual rate for a second consecutive month. Businesses expected profit margins to remain under pressure over the next six months. Input prices were expected to increase at a 2.5 percent annualized rate over the next six months, down from 3.4 percent in February, while output prices were expected to increase by 1.4 percent.
Expectations of economic activity six months from now remained solid in March but were slightly less robust than in February. The expectations index for general business conditions declined fifteen points to 25. The sales index decreased to 30 from 37. Thirty-eight percent of respondents in the March survey expected business conditions to improve over the next six months, while closer to 50 percent expected sales to improve over the next six months. Just 13 percent expected business conditions to worsen.
Overall the March survey results indicated that business activity increased moderately for the month while expectations for future activity remained positive. Notably, labor market conditions improved for a second consecutive month. Despite the modest and uneven pace of growth and uncertainty related to the U.S. economic outlook, respondents continued to be more positive about the outlook over the near term.
R. Andrew Bauer