Written by Steven Hansen
The Philly Fed Business Outlook Survey continued in contraction. Key elements are also in contraction. Both manufacturing surveys released so far for this month are in contraction,
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 a revised -10.2 to -3.5. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -5.0 to 8.0 (consensus 1.2).
Manufacturing conditions in the region contracted modestly this month, according to firms responding to the January Manufacturing Business Outlook Survey. The indicator for general activity remained negative this month; however, it rebounded from a lower reading in December. Other indicators offered mixed signals: Shipments increased this month, but new orders and employment declined modestly. The survey’s price indexes suggest continued downward pressure on manufacturing prices. With respect to the manufacturers’ forecasts, nearly all the survey’s future indicators showed continued weakening this month while remaining positive.
Most Current Indicators Suggest Weak Activity
The diffusion index for current activity increased from a revised reading of -10.2 in December to -3.5 and has now been negative for five consecutive months. The index for current new orders remained negative but increased 10 points, to -1.4. Firms reported an increase in shipments to begin the new year: The shipments index increased 12 points, its first positive reading in four months. Firms reported continued declines in inventories: The inventories index remained negative and decreased 10 points. Firms’ backlog of unfilled orders also declined this month, and delivery times were shorter, according to the responding firms.
The survey’s labor market indicators suggest weaker employment. The employment index decreased 4 points, from 2.2 to -1.9. Nearly 69 percent of the firms reported no change in employment this month, and the percentage reporting decreases (16 percent) was slightly larger than the percentage reporting increases (14 percent).
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Econintersect believes the important elements of this survey are new orders and unfilled orders . Both new orders and unfilled orders improved but remain in contraction.
This index has many false recession warnings.
Summary of all Federal Reserve Districts Manufacturing:
Richmond Fed (hyperlink to reports):
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Kansas Fed (hyperlink to reports):
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Dallas Fed (hyperlink to reports):
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Philly Fed (hyperlink to reports):
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New York Fed (hyperlink to reports):
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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:
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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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