posted on 19 March 2015
Written by Steven Hansen
The Philly Fed Business Outlook Survey growth was statistically unchanged and continues to suggest weaker growth. Consider however that this is the thirteenth month in a row of expansion - even though the expansion was weaker or stronger in any particular month. Key elements were mixed. This survey came in under expectations.
This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been positive over the last 13 months.
The market was expecting the index value of +2.0 to +12.0 (consensus 7.0) versus the actual at 5.0. Positive numbers indicate market expansion, negative numbers indicate contraction.
z philly fed1.PNG
Econintersect believes the important elements of this survey are new orders and unfilled orders . Unfilled orders has reversed again and is now in contraction territory, and new orders expansion continued at a slower rate.
This index has many false recession warnings. However, holding this and other survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (long dark blue bar) and US Census manufacturing shipments (long pink bar) to the Philly Fed Survey (yellow bar).
Summary of all Federal Reserve Districts Manufacturing:
Richmond Fed (hyperlink to reports):
Kansas Fed (hyperlink to reports):
Dallas Fed (hyperlink to reports):
Philly Fed (hyperlink to reports):
z philly fed1.PNG
New York Fed (hyperlink to reports):
Federal Reserve Industrial Production - Actual Data (hyperlink to report):
Holding this and other survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (lighter blue bar) to the Dallas Fed survey (light blue bar).
Comparing Surveys to Hard Data:
In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.
Caveats on the use of Philly Fed Business Outlook Survey:
This is a survey, a quantification of opinion - not facts and data. Surveys lead hard data by weeks to months, and can provide early insight into changing conditions. Econintersect finds they do not necessarily end up being consistent compared to hard economic data that comes later, and can miss economic turning points.
This survey is very noisy - and recently showed recessionary conditions. And it is understood from 3Q2011 GDP that the economy was expanding even though this index was in contraction territory. On the positive side, it hit the start and finish of the 2007 recession exactly.
No survey is accurate in projecting employment - and the Philly Fed Business Outlook Survey is no exception. Although there are some general correlation in trends, month-to-month movements have not correlated with the BLS Service Sector Employment data.
Over time, there is a general correlation with real business data - but month-to-month conflicts are frequent.
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