Philly Fed Business Outlook: Slightly Slower Growth

October 16, 2014

by Doug Short

Note from Doug: Having lived for two wonderful years in Paoli, PA, a suburb west of Philadelphia just south of Valley Forge, I have a special interest in this regional indicator. But, more importantly, it gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index.


The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 20.7, a small decrease from last month's 22.5. The 3-month moving average came in at 23.7, down from 24.8 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook slipped to 54.5 from last month's 56.

Here is the introduction from the Business Outlook Survey released today:

Firms responding to the October Manufacturing Business Outlook Survey indicated continued growth in the region’s manufacturing sector this month. Most broad indicators of current growth, while positive, weakened from higher readings last month. The current activity, shipments, and employment indexes declined, while the index for new orders was at a higher level compared with September. A larger percentage of firms reported higher prices for their own manufactured goods this month. The survey’s indicators for future manufacturing conditions fell from higher readings but continued to reflect general optimism about growth in activity and employment over the next six months. (Full PDF Report)

Today's 20.7 came in fractionally above the 20.0 forecast at Investing.com.

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. The indicator is now above its post-contraction peak in September of last year.

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In the next chart we see the complete series, which dates from May 1960. The average absolute monthly change across this data series is 7.4, which shows that the 1.8 point change from last month is well below usual monthly volatility.

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

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The Philly Fed General Activity Index continues to be a key indicator to watch closely.

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