Written by Steven Hansen
The Philly Fed Business Outlook Survey again declined.
Analyst Opinion of the Philly Fed Business Outlook Survey
Overall, this report was worse than last month as key elements declined
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 than the others recently.
The index moved from 30.7 to 21.9. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 24.2 to 30.0 (consensus +28.5).
Manufacturing activity in the region continued to expand this month, according to firms responding to the July Manufacturing Business Outlook Survey. The indicators for general activity, shipments, and new orders all declined but remain elevated. The firms continued to report increases in employment and prices. Most of the survey’s future indexes tempered but continue to indicate overall optimism about growth over the next six months.
Current Indicators Remain Elevated
The diffusion index for current manufacturing activity fell from a reading of 30.7 in June to 21.9 this month (see Chart 1). Thirty-three percent of the firms reported increases in current activity this month, while only 11 percent reported decreases. The majority of firms (51 percent) reported no change in current activity. The current new orders index decreased 5 points to 17.0 in July, while the current shipments index fell 3 points to 24.6.
The firms continued to add to their payrolls this month. The current employment index edged down from a reading of 30.7 in June to 29.2 this month. Over 38 percent of the responding firms reported increases in employment, while only 9 percent of the firms reported decreases. The current workweek index fell 2 points to 18.4.
z philly fed1.PNG
Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders declined but remain in expansion whilst unfilled orders declined but remain 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
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 (red bar) to the Philly Fed survey (yellow bar).
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 the 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.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>
