Written by Steven Hansen
The Philly Fed Business Outlook Survey declined.
Analyst Opinion of the Philly Fed Business Outlook Survey
Overall, this report was worse than last month and key elements improvements were mixed
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 50.2 to 31.5. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 39.5 to 48.0 (consensus +45.0).
Manufacturing activity in the region continued to grow, according to the firms responding to the May Manufacturing Business Outlook Survey. The survey’s current indicators for general activity, new orders, and shipments declined from April’s readings but remained elevated. Additionally, employment increases were less widespread this month, while both price indexes reached long-term highs. Most future indexes moderated this month but continue to indicate that the firms expect growth over the next six months.
Current Indicators Remain Positive
The diffusion index for current activity decreased 19 points to 31.5 in May, after reaching long-term high readings in March and April (see Chart). Over 43 percent of the firms reported increases in current activity this month (down from 59 percent last month), while 12 percent reported decreases (up from 8 percent). The index for new orders decreased 4 points to a reading of 32.5. The current shipments index fell 4 points to 21.0 in May. Over 42 percent of the firms reported increases in shipments this month, while 21 percent reported decreases.
On balance, the firms reported increases in manufacturing employment, but increases were less widespread, as the current employment index decreased 12 points to 19.3. Almost 26 percent of the firms reported higher employment, 6 percent reported lower employment, and 65 percent reported no change. The average workweek index rose 6 points to 35.5.
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Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders declined but remain in expansion whilst unfilled orders 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 (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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