Written by Steven Hansen
The Philly Fed Business Outlook Survey improved and remains in expansion. Key elements are in expansion but declined.
Analyst Opinion of the Philly Fed Business Outllook Survey
Consider this a weaker report than last month because of the decline of the key internals.
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 +23.8 to 27.9. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg / Econoday) 15.0 to 25.8 (consensus +20.2).
Manufacturing firms reported continued growth in regional manufacturing in October. The survey’s current indicators for general activity, new orders, shipments, and employment all remained positive this month. Both of the survey’s current labor market indicators showed notable improvement. The indexes assessing the six-month outlook suggest that firms remained optimistic about future growth.
Current Indicators Suggest Continued Growth
The index for current manufacturing activity in the region increased 4 points to a reading of 27.9 and is now at its highest reading since May (see Chart 1). More than 39 percent of the firms indicated increases in activity this month, while 11 percent reported decreases. Both the new orders and shipments indexes remained positive but fell this month, decreasing 10 points and 13 points, respectively. Both the unfilled orders and delivery times indexes were positive for the 12th consecutive month, suggesting longer delivery times and an increase in unfilled orders.
Firms reported, on balance, an increase in manufacturing employment and longer workweeks this month. Nearly 31 percent of the firms reported higher employment this month compared with 18 percent last month. No firms reported decreases in employment this month. The current employment index increased 24 points to a record high reading of 30.6. The average workweek index also increased 8 points, its highest reading in four months.
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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 but declined.
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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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