How Businesses Would React To Changes In Material Costs

The Atlanta Federal Reserve publishes a monthly report titled “Business Inflation Expectations” (BIE) that contains statistics from a survey of regional businesses’ views on various factors that impact profitability.  These factors include unit costs, unit cost expectations, sales levels, profit margins, and other factors.

As described on the site:

Approximately 300 panelists receive the survey each month. Panelists represent businesses of various sizes headquartered within the Sixth District, which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee. Panelists range from executives of large corporations to owner-operators of small businesses. The industry composition of the panel roughly reflects the makeup of the national economy. Nevertheless, survey responses are weighted by industry shares of national gross domestic product.

An excerpt from the BIE Survey of July 17 (pdf) (involving 209 firms) :

Firms also report that, compared to this time last year, their unit costs are up 1.8 percent. The improvement in sales levels noted by respondents in June have receded somewhat, with 50 percent now saying their current sales levels are at or above normal compared to 56 percent in June. Profit margins also declined slightly from the June reading, with 46 percent of firms stating that their margins are at or above normal, compared to 49 percent in June. 

Also, this month’s “special question” was with regard to how businesses would react – from a pricing perspective – to a 10% increase or 10% decrease in raw material costs.  The chart of the questions results can be seen below:

Fed 7-17-13 BIE reaction to raw materials cost changes

As well, a July 16 blog post from the Atlanta Fed, titled “Commodity Prices and Inflation:  The Perspective of Firms,” discusses the findings.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.