Written by Steven Hansen
The Philly Fed Business Outlook Survey declined by remained in expansion. Key elements remained in positive territory.
Analyst Opinion of the Philly Fed Business Outlook Survey
Although the survey index declined, the key element sales significantly improved while unfilled orders significantly declined. 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 +13.7 to +8.5. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) -2.0 to 15.0 (consensus +4.4).
Regional manufacturing activity continued to grow in April, according to results from this month’sManufacturing Business Outlook Survey. Although the survey’s indicators for general activity and shipments fell from their readings last month, the indicators for new orders, employment, and the workweek improved. The survey’s indexes for future activity and employment continued to moderate, but the surveyed firms remained generally optimistic about growth over the next six months.
Current Indicators Positive but Mixed
The index for current manufacturing activity in the region decreased from a reading of 13.7 in March to 8.5 this month (see Chart 1). The survey’s other broad indicators were positive, but their movements were mixed. The new orders index increased 14 points to 15.7 this month. Over 39 percent of the firms reported an increase in new orders, up from 26 percent last month. The current shipments index decreased 2 points from its reading in March, with 21 percent of the firms reporting decreases compared with 14 percent last month. Delivery times shortened this month, according to the respondents: The delivery times index fell 14 points to its first negative reading in 30 months. The current inventory index also fell, by 15 points to a reading of 2.6.
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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.
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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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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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