Prices Paid And Prices Received Diffusion Indices

Each month the Philadelphia Fed releases the Business Outlook Survey, which contains a variety of information concerning business conditions.

As seen on the site:

The Business Outlook Survey is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, delivery times, prices paid, and prices received. The survey has been conducted each month since May 1968.

One component of this survey are diffusion indices for both “Prices Paid” and “Prices Received.” (for those unaware, this survey provides the following definition:  “Diffusion indexes represent the percentage indicating an increase minus the percentage indicating a decrease.”)

Doug Short provides a monthly blog post concerning the Philadelphia Fed’s Business Outlook Survey.  For reference purposes, here is a chart he has created that shows, from a long-term perspective, the “Prices Paid” and “Prices Received” diffusion indices (shown by the dots) and their 12-month moving averages (shown by the solid lines) :

(click on chart to enlarge image)

Dshort July 2013 Philly-Fed-PPC-and-PRC-12MA

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided 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.

Low Inflation’s Impact On Pricing And Revenue

The Wall Street Journal published an article on July 15, titled “Tame Inflation Also Has Some Drawbacks,” that discusses various aspects of low inflation and its impact, including companies’ ability to raise prices and other aspects impacting corporate earnings and revenues.

An excerpt from the article :

While tame prices avoid spooking the Fed, freeing it to consider factors such as unemployment, they may be too subdued. Rising prices boost companies’ top lines and, ultimately, profits. That is needed to underpin stock gains. With margins already well above average, corporate revenue must start pulling its weight. As earnings season gets under way in earnest this week, it seems possible, though, that year-over-year revenue will be about flat. This would mark the third-consecutive quarter of ennui.

Nicholas Colas, chief market strategist at ConvergEx Group, dubs this a “revenue recession.”

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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.

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.

S&P500 Historical And Projected Net Profit Margins

For reference purposes, below are two charts depicting net profit margins for the S&P500.  Both charts are from the FactSet Earnings Insight report (pdf) dated July 12, 2013.

The first chart depicts S&P500 net margins (TTM) since mid-2003, as depicted:

Trailing 12M Net Margin: 10 Years

FactSet Earnings Insight 7-12-13 - SPX Trailing 12M Net Margin - 10 Years

The second chart depicts S&P500 quarterly net margins from Q4 2010 through Q1 2013, and projected net margins from Q2 2013, as depicted:

Quarterly Net Margins (Bottom-Up EPS / Bottom-Up SPS)

FactSet Earnings Insight 7-12-13 - SPX Quarterly Net Margins

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided 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.

S&P500 Sales Per Share Charts

The FactSet Earnings Insight report of July 12 contained two charts depicting S&P500 revenues from a long-term perspective.

For reference purposes, below are the two charts depicting S&P500 sales.

The first chart depicts S&P500 annual revenues (and future estimates) on a Sales Per Share (SPS) basis since the year 2000, as depicted:

Calendar Year Bottom-Up SPS Actuals & Estimates

FactSet Earnings Insight 7-12-13 - SPX SPS Since 2000

The second charts depicts S&P500 quarterly revenues (and future estimates), since Q4 2010, on a Sales Per Share (SPS) basis, as depicted:

Quarterly Bottom-Up SPS Actuals & Estimates

FactSet Earnings Insight 7-12-13 - SPX SPS Since Q4 2010

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided 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.