Written by Steven Hansen
The Philly Fed Business Outlook Survey continued in contraction. Key elements went deeper into 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 improved from -3.5 to -2.8. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -7.5 to 2.8 (consensus -2.5).
Firms responding to the Manufacturing Business Outlook Survey reported continued weakness in business conditions this month. The indicator for general activity remained slightly negative this month, edging up only marginally from its reading in January. Other indicators offered mixed signals: The shipments index remained positive, but new orders and employment indexes remained negative and declined modestly. The survey’s price indexes suggest that both input prices and selling prices fell this month. With respect to the manufacturers’ forecasts, the survey’s future indicators remained overall positive but showed continued weakening.
Current Indicators Suggest Continued Weak Activity
The diffusion index for current activity increased from a reading of -3.5 in January to -2.8 in February and has now been negative for six consecutive months (see Chart 1). The index for current new orders remained negative and edged down 4 points, to -5.3. Firms reported an increase in shipments; the shipments index remained positive for the second consecutive month but fell 7 points from January. Firms reported continued declines in inventories, and the inventories index remained negative. Firms’ backlogs of unfilled orders were in decline again this month, and delivery times were shorter, according to the responding firms.
The survey’s labor market indicators suggest continued weak employment conditions. The employment index decreased 3 points, from -1.9 to -5.0. About 63 percent of the firms reported no change in employment this month, and the percentage reporting decreases (20 percent) was slightly larger than the percentage reporting increases (15 percent).
z philly fed1.PNG
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):
z richmond_man.PNG
Kansas Fed (hyperlink to reports):
z kansas_man.PNG
Dallas Fed (hyperlink to reports):
z dallas_man.PNG
Philly Fed (hyperlink to reports):
z philly fed1.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 (lighter blue bar) to the Philly Fed survey (yellow bar).
Comparing Surveys to Hard Data:
z survey1.png
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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