The Philly Fed Business Outlook Survey headlines for July 2011 show the index has entered recessionary territory.
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a slightly positive reading of 3.2 in July to -30.7 in August. The index is now at its lowest level since March 2009 (see Chart below). The demand for manufactured goods, as measured by the current new orders index, paralleled the decline in the general activity index, falling 27 points. The current shipments index fell 18 points and recorded its first negative reading since September of last year. Suggesting weakening activity, indexes for inventories, unfilled orders, and delivery times were all in negative territory this month.
Remember, surveys are supposed to be a peek at the future, but Econintersect continues to warn these are no more than interesting bar room talk. This is not data; rather it is opinion which leads hard data by a month or so, and often the hard data differs from the corresponding prior opinion.
Econintersect believes the important elements of this survey are new orders and unfilled orders. The number of respondents who thought new orders and unfilled orders were improving fell this month.
I have said in the past that the way the Philly Fed uses diffusion indexes – they ignore respondents who say no change, and subtract respondents who say things are getting worse from those who think things are getting better.
This month, the respondents who said conditions were declining were so overwhelming, I have graphed the unadjusted diffusion index (improving minus contracting) for new orders and unfilled orders (backlog).
Highlighted is the weak period that occurred in July 2010.
Unfilled orders which is a litmus test on the match between new orders and current production capacity is declining according to this survey – but improved from last month.
Surveys are NOT hard data. It is a quantification of opinion. Econintersect analysis indicates economic growth is continuing to slow. However, based on last year – this negative result seems to be a New Normal seasonal factor.
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