Philly Fed Manufacturing Index Picks Up in December, Surprises Forecast

The Philly Fed's Manufacturing Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. While it focuses exclusively on business in this district, this regional survey gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index.

The latest Manufacturing Index came in at 21.5, up from last month's 7.6. The 3-month moving average came in at 12.9, up from 10.0 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook came in at 52.6, an increase over the previous month's 29.3.

Today's 21.5 came in well above the 9.0 forecast at

Here is the introduction from the survey released today:

Activity picked up in December, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The indexes for general activity, shipments, and employment were all positive this month and increased from their readings last month. Manufacturers were much more optimistic about growth over the next six months. The indexes for future employment and capital spending also showed a notable rise. (Full Report)

The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012, and a shallower contraction in 2013. Last year saw a contraction with an improvement in 2016.

In the next chart we see the complete series, which dates from May 1960. For proof of the high volatility of the headline indicator, note that the average absolute monthly change across this data series is 7.7.

The next chart is an overlay of the General Activity Index and the Future General Activity Index — the outlook six months ahead.