Large firms report a sales volume shortfall in the 6th District

Phalguni Soni
March 27, 2014

Will firms' March inflation forecasts impact the Fed’s mandate? (Part 3 of 5)

(Continued from Part 2)

Business inflation expectations

Survey results for the Business Inflation Expectations (or BIE) of firms located in the Sixth District for March were released on Friday, March 21, by the Federal Reserve Bank of Atlanta. The survey was conducted from March 10 to 14, and the 196 survey participants were asked questions relating to their business conditions, inflation outlook, and potential pricing pressures.

Inflation expectations for the year ahead were lower

The 196-firm survey pegged business inflation expectations for the year ahead at 1.8%, lower than the 2% estimate released in February. Inflation uncertainty, at 2.4%, was unchanged from last month. Inflation uncertainty, primarily over the long term, is one of the factors contributing towards an upwardly sloping yield curve. Under normal circumstances, the yield curve slopes upward—meaning long-term rates (TLH) are higher than rates for shorter maturities (SHY). The iShares 10–20 Year Treasury Bond ETF (TLH) and the iShares 20+ Year Treasury Bond ETF (TLT) invest in longer-term Treasury securities, while the iShares 1-3 Year Treasury Bond ETF (SHY) invests in short-term Treasuries.

Present sales levels are unchanged

Sales levels among survey respondents didn’t change significantly. The diffusion index measuring current sales levels came in at -21 for the month of March, unchanged from February’s reading. A reading below zero indicates sales levels are below normal, while a positive reading indicates sales are above normal. Of surveyed firms, 17% reported sales levels were higher than normal. This was down from 20% in February. Also, 33% of surveyed firms reported no change in sales levels, up from 28% in February. About 49% of surveyed firms reported that their sales were down from normal levels, compared to ~51% in February.

Quarterly question: Sales volumes are below par for all firm sizes

This month’s quarterly question surveyed firms on average unit sales. Firms reported that their unit sales gap was 5.7% below normal, compared to 4.8% below normal in December 2013. Small firms (those with fewer than 100 employees) reported the largest sales gap, at 9.1%, followed by mid-sized firms (those with 100 to 499 employees), at 5.6%. Large firms (those with over 500 employees) reported a sales gap of 3%. The unit sales gap measures the percentage by which sales were below normal in terms of volumes.

ETFs that invest in larger companies include the iShares S&P 100 ETF (OEF) and the Vanguard S&P 500 ETF (VOO). The largest holding in both OEF and VOO is the iPhone and iPad maker, Apple (AAPL). Besides high-end mobile devices and tablets, Apple (AAPL) may soon be entering into the TV streaming business.

To find out how the 196 firms surveyed responded to the survey’s special question, read on to Part 4 of this series.

Continue to Part 4

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