Written by Steven Hansen
The Philly Fed Business Outlook Survey is now slightly in expansion. Key elements marginally declined and remain in contraction. The only other manufacturing survey released so far for this month is also in expansion.
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 -1.8 to +4.7. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -3.4 to 3.9 (consensus +0.8).
Firms responding to the Manufacturing Business Outlook Survey reported little growth this month. Though the indicator for general activity was positive in June, other broad indicators continued to reflect general weakness in business conditions. The indicators for both employment and work hours remained negative. Forecasts of future activity weakened from last month but continued to suggest that manufacturers expect growth over the next six months.
Current Indicators Are Mixed
The diffusion index for current activity rose almost 7 points, to 4.7, and returned to positive territory this month after two consecutive negative readings (see Chart). About one-quarter of the firms reported increases in activity, similar to last month, while 20 percent of the firms reported decreases, down from 26 percent last month. More than 52 percent of the firms reported steady activity. The current new orders and shipments indexes, however, remained slightly negative, slipping 1 and 2 points, respectively. Nearly 55 percent of the respondents reported no change in new orders this month, and 45 percent reported no change in shipments. As with the other broad indicators this month, the unfilled orders, delivery times, and inventories indexes all remained negative.
The survey’s labor market indicators suggest continued weak employment conditions. The employment index was negative for the sixth consecutive month, falling from -3.3 in May to -10.9 in June. Though nearly 72 percent of the firms reported no change in employment this month, the percentage reporting decreases (20 percent) exceeded the percentage reporting increases (9 percent). The average workweek index edged up slightly but remained negative, at -13.1.
z philly fed1.PNG
Econintersect believes the important elements of this survey are new orders and unfilled orders . Both new orders and unfilled orders declined with both remaining 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):
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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