March 2018 Philly Fed Manufacturing Survey Marginally Weaker

Written by Steven Hansen

The Philly Fed Business Outlook Survey marginally declined and remains in expansion. Key elements 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 +25.8 to +22.3 Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg / Econoday) 20.0 to 26.8 (consensus +23.3).

Results from the March Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. Although the survey’sindex for general activity moderated, the indexesfor new orders and shipmentsimproved. The survey’sfuture indexes, measuring expectationsfor the nextsix months, reflected continued optimism.

Current Indicators Suggest Continued Growth

The diffusion index for current general activity remained positive but declined, from 25.8 in February to 22.3 this month (see Chart 1). Nearly 37 percent of the manufacturersreported increasesin overall activity this month, while 14 percent reported decreases. The indexesfor current new orders and shipmentsrecorded notable improvementsthis month. The current new ordersindex increased 11 points, with 52 percent of the firmsreporting an increase in new orders. The shipmentsindex increased 17 points. The indexesfor unfilled orders and delivery times were positive and increased 6 points and 10 points, respectively. Inventories were higher this month: The current inventoriesindex increased from -0.9 to 16.5.

z philly fed1.PNG

Econintersect believes the important elements of this survey are new orders and unfilled orders . New orders improved and remained in expansion whilst unfilled orders improved and remained 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.

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