Philly Fed Business Survey Continues to Improve in September 2010

Please read September 2010 Empire Survey Shows Continuing Improvement. An almost identical result was seen in the Philly Fed business survey for September 2010 The headline statement:

Results from the Business Outlook Survey suggest that regional manufacturing activity was nearly flat in September. For the second consecutive month, firms reported a decline in both new orders and shipments. Employment levels remained steady this month, but firms reported declines in average work hours. The survey’s broad indicators of future activity continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism remains below levels earlier in the year.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of -7.7 in August to -0.7 in September. The index, which has been negative for two consecutive months, suggests that growth has stalled over the last two months (see Chart). Indexes for new orders and shipments continued to indicate weakness this month: The new orders index fell 1 point, remaining negative for the third consecutive month, and the shipments index decreased 3 points, remaining negative for the second consecutive month. Firms reported declines in inventories and unfilled orders and shorter delivery times.

Firms reported near steady employment this month but lower average work hours for existing employees. The percentage of firms reporting increases in employment (18 percent) narrowly edged out the percentage reporting decreases (16 percent). The index for employment was slightly positive this month, increasing 5 points from its negative reading in August. Indicative of weaker activity, more firms reported declines in average work hours for existing employees (30 percent) than reported increases (8 percent).

Surveys try to apply quantitative analysis to bar room discussion. While interesting to quants, we lose focus on the most important – new orders and backlog. Backlog is the gauge whether the economy is growing.

But hold on, this is rather weak growth – not something to crow about, but better than a few months ago. This is consistent with Econintersect’s weak growth scenario for the next 30 to 60 days.

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