According to the latest survey results, business activity in Maryland improved modestly in May. The general business activity index registered 5 for the month, down one point from April. Respondents reported a sharp increase in sales for the month, however, with the index increasing to 20 from 0 in April. Business spending was fairly muted with little increase in spending on services and a moderate increase in equipment and software spending. Labor market conditions softened with respondents reporting less job gains and dampened expectations. Profit margins continued to come under pressure with increases in input costs outpacing output prices. Expectations for activity in the near future moderated considerably in May. Roughly 35 percent of respondents anticipated greater business activity six months from now while 23 percent expected activity to decline.
Business activity improved modestly in May as the general business activity index registered 5, edging lower by one point from last month. However sales rose sharply with the index jumping to 20 after registering 0 in April. Business spending was moderate in May. Spending on business services was modest with an index reading of 5, down two points from last month. There was little increase in total capital expenditures in May according to the survey, with the index decreasing to 5 from 11 in April. However, respondents reported a moderate increase in spending on equipment and software; the index registered 13 in May, down five points from last month.
Labor market conditions softened in May. This follows three consecutive months where the survey results 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. Twenty-eight 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. In April the index registered 17, down somewhat from the prior month, but still indicating a strengthening of labor market conditions. However, in the latest survey, the index dropped back to 9. Just as in last month's survey, roughly one in four respondents indicated that they added workers in May. However, the number of respondents indicating that they planned to reduce workers almost doubled to 16 percent. Notably, respondents reported that finding workers with needed skills remained somewhat difficult, with the index below 0 for a fifth consecutive month. In addition, respondents continued to report higher wages. The wage index registered 25 in May, down from a high of 36 in April.
Expectations for future labor market conditions were weaker for a third consecutive month. The number of employees expectations index dropped into negative territory for the first time since July 2009. The percentage of firms anticipating hiring over the next six months remained under 20 percent for a second consecutive month. The number of firms anticipating reducing staff increased five percentage points to over 25 percent. Expectations for hours worked also turned negative, with the average workweek index declining eleven points to −9.
Businesses reported that margins remained under pressure with increases in input prices outpacing output prices. Respondents reported that input prices rose 3.3 percent in May on an annualized basis, up sharply from April's reading of 2.2 percent. Output prices increased at a 1.8 percent rate on an annualized basis, an increase of 0.9 percentage points from last month.
Businesses expected profit margins to remain under pressure over the next six months. Input prices were expected to increase at a 2.8 percent annualized rate over the next six months, while output prices were expected to increase by 2.0 percent.
Expectations of economic activity six months from now softened notably in May. The expectations index for general business conditions and sales decreased twelve and twenty points, respectively, to index readings of 12 and 9. Roughly 35 percent of respondents in the May survey expected business conditions to improve over the next six months. However, 23 percent expected business conditions to worsen.
Overall the survey results indicated that business activity increased modestly in May. Labor market conditions softened after three months of improvement. After holding steady in recent surveys, expectations for activity six months from now weakened notably.
R. Andrew Bauer