Written by Steven Hansen
The Philly Fed Business Outlook Survey improved and returned to expansion. Key elements were positive but little changed from last month.
Analyst Opinion of the Philly Fed Business Outlook Survey
Although the survey index significantly improved, the key elements of new orders and unfilled orders were little changed with new orders marginally improving and unfilled orders marginally declining. Overall, I do not consider this survey much different than last month.
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 -4.1 to +13.7. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) -2.0 to 15.0 (consensus +4.4).
Manufacturing conditions in the region improved this month, according to firms responding to the March Manufacturing Business Outlook Survey. The indicators for general activity, new orders, and shipments returned to positive territory, while the indicator for employment remained positive. Price pressures also moderated, according to the surveyed firms. Most of the survey’s indexes for future conditions continued to moderate, but the firms remained generally optimistic about growth over the next six months.
Most Current Indicators Rebound
The index for current manufacturing activity in the region increased from a reading of -4.1 in February to 13.7 this month. The index nearly recovered its decline from last month, when it dropped to its first negative reading in almost three years (see Chart 1). Both the new orders and shipments indexes also increased this month. The current new orders index improved modestly, increasing from -2.4 in February to 1.9 in March. The current shipments index increased 25 points to 20.0.
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Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders significantly declined and now is in contraction whilst unfilled orders modestly improved and is 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):
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Kansas Fed (hyperlink to reports):
z kansas_man.PNG
Dallas Fed (hyperlink to reports):
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Philly Fed (hyperlink to reports):
z philly fed1.PNG
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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