November 2011 Philly Fed Survey Continues to Show Weak Growth

The Philly Fed Business Outlook Survey headlines for November 2011 show the index fell slightly – but remains in growth territory.

Responses to the Business Outlook Survey this month suggest that regional manufacturing is expanding, but at a slow pace. The survey’s broad indicators for activity, shipments, and new orders recorded positive readings this month, but all declined slightly from their October readings. Employment conditions improved, as indicated by increases in the indexes for employment and average workweek. The broadest indicator of future activity showed marked improvement, and firms were notably more optimistic about future employment.

Indicators Suggest Slight Expansion The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, remained positive for the second consecutive month, but it decreased from 8.7 in October to 3.6 (see Chart). Indexes for current new orders and shipments showed a similar pattern, remaining positive but falling 7 points and 6 points, respectively. Firms reported an overall increase in inventories this month; the inventories diffusion index rose from ‐7.7 to 6.6.

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.

The levels of improving conditions in new orders and unfilled orders remain near the average levels seen since January 2010.

Econintersect’s overall economic analysis indicates economic growth is continuing to slow – but it is growth none-the less.

Caveats on the use of Philly Fed Business Outlook Survey:

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.

This is a quantification of opinion. Opinion surveys are useful for general impressions but Econintersect finds they usually 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.

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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