Written by Steven Hansen
The Philly Fed Business Outlook Survey declined but remains well into expansion.
Analyst Opinion of the Philly Fed Business Outlook Survey
Overall, this report was slightly worse than last month’s report as key elements declined.
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 24.1 to 17.2. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 20.0 to 28.3 (consensus +21.5).
Manufacturing activity in the region continued to expand this month, according to firms responding to the August Manufacturing Business Outlook Survey. The survey’s current indicators for general activity, new orders, and shipments remained positive for the third consecutive month but fell from their readings in July. The employment index also fell from its reading in July but remained in positive territory for the second consecutive month. Most of the future indicators remained elevated, suggesting that the firms expect growth over the next six months.
Most Current Indicators Remain Positive
The diffusion index for current activity fell 7 points to 17.2 in August, its third consecutive positive reading after reaching long-term lows in April and May (see Chart). The percentage of firms reporting increases (28 percent) exceeded the percentage reporting decreases (11 percent). The index for new orders decreased from 23.0 to 19.0. Over 34 percent of the firms reported increases in new orders this month, while 15 percent reported decreases. The current shipments index fell 6 points to 9.4 in August.
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Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders declined (but remained in expansion) whilst unfilled orders declined and are marginally 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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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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