Philly Fed Business Outlook in July 2011 Seems Worse Than Report Suggests

The Philly Fed Business Outlook Survey headlines for July 2011 show the diffusion index improved to 3.2 from last months negative 7.7.  This mysterious diffusion is a statistical abortion which tries to quantify changes in sentiment.

The survey’s indicators for activity and new orders, which had turned negative last month, recovered somewhat but are at very low positive readings.

Remember, surveys are supposed to be a peek at the future, but Econintersect continues to warn these are no more than interesting bar room talk.  This is not data but opinion which leads hard data by a month or so.

The way the Philly Fed uses diffusion indexes – they ignore respondents who say no change, and subtract respondents who say things are getting worse from those who think things are getting better.

But I think watching only “improving” responses tell a better story.  Last month the index was down (analysis here) – and this month the index is up.

Econintersect believes the important elements of this survey are new orders and unfilled orders.  The number of respondents who thought new orders and unfilled orders were improving fell this month.

Unfilled orders which is a litmus test on the match between new orders and current production capacity is actually declining according to this survey with 8.8% of respondents saying conditions are improving, while 25.1% say things are worse.

Surveys are NOT hard data.  It is a quantification of opinion.  Econintersect analysis indicates economic growth is slowing, based on key factors in the Philly Fed survey.

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