July 2020 Philly Fed Manufacturing Survey Index Marginally Declined

Written by Steven Hansen

The Philly Fed Business Outlook Survey marginally declined but remains well into 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 positive 27.5 to 24.1. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 15.0 to 22.5 (consensus +20.0).

Manufacturing activity in the region continued to expand this month, according to firms responding to the July Manufacturing Business Outlook Survey. The survey’s current indicators for general activity, new orders, and shipments showed positive readings for the second consecutive month, coinciding with the phased reopening of the economy in our region. The employment index reached positive territory for the first time since March. Although future indicators for general activity, new orders, and shipments declined from last month’s readings, the indexes remained elevated, suggesting that the firms expect overall growth over the next six months.

Most Current Indicators Are Positive

The diffusion index for current activity edged down 3 points to 24.1 in July, its second consecutive positive reading after reaching long-term lows in the spring (see Chart 1). The percentage of firms reporting increases (45 percent) this month exceeded the percentage reporting decreases (21 percent). The index for new orders rose from 16.7 to 23.0. Nearly 47 percent of the firms reported increases this month, while 24 percent reported decreases. The current shipments index fell 10 points to 15.3 in July. Unfilled orders rose 4 points to 3.9, while delivery times fell 7 points to -6.4, suggesting shorter delivery times.

z philly fed1.PNG

Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders improved whilst unfilled orders improved – both now 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):

z richmond_man.PNG

Kansas Fed (hyperlink to reports):

z kansas_man.PNG

Dallas Fed (hyperlink to reports):

z dallas_man.PNG

New York Fed (hyperlink to reports):

z empire1.PNG

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.

include(“/home/aleta/public_html/files/ad_openx.htm”); ?>

Permanent link to most recent post on this topic