Written by Steven Hansen
The Philly Fed Business Outlook Survey improved and remains in expansion. Key elements were mixed.
Analyst Opinion of the Philly Fed Business Outllook Survey
Consider this a stronger report than last month. But it does not make sense that new orders improved and backlog 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 +9.1 to +17.0. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 9.4 to 11.0 (consensus +10.0).
Manufacturing activity in the region continued to grow, according to results from the January Manufacturing Business Outlook Survey. The survey’s broad indicators remained positive, although their movements were mixed again this month: The general activity and new orders indicators increased from their readings last month, while the indicators for shipments and employment decreased. The firms reported growth in the underlying demand for their products and are generally optimistic about future growth and employment.
Current Indicators Suggest Growth
The index for current manufacturing activity in the region increased from a revised reading of 9.1 in December to 17.0 this month* (see Chart 1). Over 30 percent of the manufacturers reported increases in overall activity, while 13 percent reported decreases. The new orders index increased 8 points to 21.3, its highest reading in six months. The current shipments index, however, decreased 1 point to 11.4. Both the unfilled orders and delivery times indexes were positive this month, suggesting higher unfilled orders and slower delivery times. Inventories declined this month: The current inventory index fell 10 points to -7.6, its first negative reading in 14 months.
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Econintersect believes the important elements of this survey are new orders and unfilled orders . New orders significantly imporved and remains in expansion whilst unfilled orders modestly declined but remained in contraction.
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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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