October 2019 Philly Fed Manufacturing Survey Declined

Written by Steven Hansen

The Philly Fed Business Outlook Survey declined but remains in expansion.

This is a very noisy index which readers should be reminded of 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 +12.0 to +5.6. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 5.0 to 13.4 (consensus +7.1).

Manufacturing activity in the region continued to grow, according to results from the October Manufacturing Business Outlook Survey. The survey’s broad indicators remained positive, although their movements were mixed this month: The general activity and shipments indicators decreased from their readings last month, but the indicators for new orders and employment increased. The survey’s future activity indexes remained positive, suggesting continued optimism about growth for the next six months.

Changes in Current Indicators Were Mixed This Month

The diffusion index for current general activity fell 6 points this month to 5.6, after decreasing 5 points in September (see Chart 1). The percentage of firms reporting increases (27 percent) this month narrowly exceeded the percentage reporting decreases (21 percent). Movements in the indexes for current shipments and new orders were mixed: The current new orders index increased 1 point, while the shipments index decreased 8 points. Both the unfilled orders and delivery times indexes remained positive this month, suggesting higher unfilled orders and slower delivery times.

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