Written by Steven Hansen
The Philly Fed Business Outlook Survey improved and remains expansion. Key elements were strong.
Analyst Opinion of the Philly Fed Business Outllook Survey
There was significant strength in this survey from new orders – and now even unfilled orders. This was a positive report. I consider this survey very positive.
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 +21.5 to +23.6. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg / Econoday) 12.0 to 22.2 (consensus +16.0).
Economic conditions continued to improve in January, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The indexes for general activity, new orders, and employment were all positive this month and increased from their readings last month. Manufacturers have generally grown more optimistic in their forecasts over the past two months. The future indexes for growth over the next six months, including employment, continued to improve this month.
Most Current Indicators Show Broad Improvement
The index for current manufacturing activity in the region increased from a revised reading of 19.7 in December to 23.6 this month.* Forty percent of the firms reported increases in activity this month; 17 percent reported decreases. The general activity index has remained positive for six consecutive months, and the activity index reading was the highest since November 2014 (see Chart 1). The other broad indicators suggest sustaining growth. The index for current new orders increased 11 points this month, with 41 percent of the firms reporting increases. The shipments index remained at a high reading but fell 1 point. Both the delivery times and unfilled orders indexes were positive for the third consecutive month, suggesting longer delivery times and an increase in unfilled orders.
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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, and both remain in expansion.
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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).
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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