Written by Steven Hansen
The Philly Fed Business Outlook Survey declined but remains firmly in expansion. Key elements were strong.
Analyst Opinion of the Philly Fed Business Outllook Survey
There is continuing significant strength in this survey from new orders – and now even unfilled orders. This was a positive report.
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 +43.3 to +32.8. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg / Econoday) 26.5 to 41.2 (consensus +32.5).
Results from the March Manufacturing Business Outlook Survey suggest that regional manufacturing activity continued to expand. The diffusion index for general activity fell from its high reading in February, but the survey’s other broad indicators for new orders, shipments, and employment all improved or were steady this month. Price pressures also picked up, according to reporting firms. The survey’s future indicators continued to improve and reflect a broadening base of optimism about future growth in manufacturing.
Current Indicators Suggest Expansion Continues
The index for current manufacturing activity in the region decreased from a reading of 43.3 in February to 32.8 this month. The index has been positive for eight consecutive months and remains at a relatively high reading (see Chart 1). Forty-four percent of the firms indicated increases in activity in March, while 11 percent reported decreases. The current new orders and shipments indexes increased, rising 1 point and 4 points, respectively. Both the delivery times and unfilled orders indexes were positive for the fifth 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 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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