August 2017 Philly Fed Manufacturing Survey Marginally Declined But Remains In Expansion

Written by Steven Hansen

The Philly Fed Business Outlook Survey marginally declined but remains in expansion. Key elements are in expansion and significantly improved.

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 moved from +19.5 to +18.9. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg / Econoday) 13.0 to 22.0 (consensus +17.0).

Manufacturing conditions in the region continued to advance in August, according to firms responding to this month’s Manufacturing Business Outlook Survey. The diffusion index for general activity fell slightly but continued to reflect growth. There was a notable improvement in the new orders and shipments indexes, and overall employment expansion continued among the reporting firms. The survey’s indexes of future activity indicate that firms expect a continuation of growth in the region’s manufacturing sector over the next six months.

Current Indicators All Remain Positive

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell slightly from 19.5 in July to 18.9 in August. The index has been positive for 13 consecutive months (see Chart). Despite the fallback in the general activity index, the demand for manufactured goods, as measured by the survey’s current new orders index, showed notable improvement: The diffusion index increased from 2.1 to 20.4. Firms reported that shipments also continued to rise. The current shipments index increased 17 points to 29.4.

z philly fed1.PNG

Econintersect believes the important elements of this survey are new orders and unfilled orders . Both new orders and unfilled orders remain in expansion.

z philly fed2.PNG

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).

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.

include(“/home/aleta/public_html/files/ad_openx.htm”); ?>

Permanent link to most recent post on this topic