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posted on 17 November 2016

November 2016 Philly Fed Manufacturing Survey Declines But Remains In Expansion.

Written by Steven Hansen

The Philly Fed Business Outlook Survey declined but remains in expansion. Key elements were strong.

Analyst Opinion of the Philly Fed Business Outllook Survey

There was significant strength in this survey from new orders - and now even unfilled orders. This was a positive report.

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 more positive then the others recently.

The index declined from +9.7 to +7.6. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) 5.0 to 11.3 (consensus +8.0).

Results from the November Manufacturing Business Outlook Survey suggest that regional manufacturing activity continued to expand. The indexes for general activity, new orders, and shipments all remained positive this month. Overall, labor market conditions remained weak, however. More firms reported increases in prices in November compared with October. Firms expect continued growth for manufacturing over the next six months, although expectations were less optimistic than last month.

New Orders and Shipments Pick Up

The index for current manufacturing activity in the region edged down, from a reading of 9.7 in October to 7.6 this month. The index has been positive now for four consecutive months (see Chart 1). Other broad indicators showed improvement. The current new orders and shipments indexes increased from their readings in October, by 2 points and 4 points, respectively. Both the delivery times and unfilled orders indexes were positive this month, suggesting longer delivery times and an increase in unfilled orders. The current inventories index moved into positive territory for the first time in 17 months.

z philly fed1.PNG

Econintersect believes the important elements of this survey are new orders and unfilled orders . Both new orders and unfilled orders improved, and both are now in expansion.

z philly fed2.PNG

This index has many false recession warnings.

Summary of all Federal Reserve Districts Manufacturing:

Richmond Fed (hyperlink to reports):

z richmond_man.PNG

Kansas Fed (hyperlink to reports):

z kansas_man.PNG

Dallas Fed (hyperlink to reports):

z dallas_man.PNG

Philly Fed (hyperlink to reports):

z philly fed1.PNG

New York Fed (hyperlink to reports):

z empire1.PNG

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 Philly Fed survey (yellow bar).

Comparing Surveys to Hard Data:

z survey1.png

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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