Written by Steven Hansen
The Philly Fed Business Outlook Survey declined but remains in expansion. Key elements significantly declined.
Analyst Opinion of the Philly Fed Business Outllook Survey
Consider this a much weaker report than last month as key elements significantly declined.
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 than the others recently.
The index moved from +25.7 to +11.9. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Nasdaq / Econoday) 20.0 to 23.8 (consensus +22.3).
Growth in regional manufacturing activity slowed in August, according to results from this month’sManufacturing Business Outlook Survey. All the broad indicators remained positive but fell from their readings in July. The survey’s respondents continued to indicate price increases for purchased inputs and their own manufactured products, but these price indexes moderated slightly this month. Expectations for the next six months remained optimistic, with most broad future indicators showing improvement.
Current Indicators Still Positive but Weaken
The diffusion index for current general activity decreased 14 points this month to 11.9, its lowest reading in 21 months (see Chart 1). Nearly 32 percent of the manufacturers reported increases in overall activity this month, while 20 percent reported decreases. The new orders index fell 22 points to 9.9. More than 34 percent of the firms reported an increase in new orders, while 24 percent reported a decrease.
The firms continued to report overall higher employment, but increases were less widespread this month. Just 18 percent of the responding firms reported increases in employment this month, down from 24 percent last month. Only 4 percent of the firms reported decreases in employment. The current employment index fell 3 points to 14.3. The current average workweek index declined 3 points.
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Econintersect believes the important elements of this survey are new orders and unfilled orders . New orders significantly declined but remains in expansion whilst unfilled orders moderately 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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