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Philly Fed Manufacturing Index: Activity Contracts Modestly in January

January 21, 2016

by Jill Mislinski

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 -3.5, up from last month's revised -10.2. The 3-month moving average came in at -6.5, up from a revised -7.3 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was up at 19.1, versus the previous month's 24.1. Annual historical revisions were made on January 14.

Today's -3.5 came in above the -5.0 forecast at Investing.com.

Here is the introduction from the survey released today:

Manufacturing conditions in the region contracted modestly this month, according to firms responding to the January Manufacturing Business Outlook Survey. The indicator for general activity remained negative this month; however, it rebounded from a lower reading in December. Other indicators offered mixed signals: Shipments increased this month, but new orders and employment declined modestly. The survey’s price indexes suggest continued downward pressure on manufacturing prices. With respect to the manufacturers’ forecasts, nearly all the survey’s future indicators showed continued weakening this month while remaining positive. (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.

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.

For comparison, here is the latest ISM Manufacturing survey.

Let's compare all five Regional Manufacturing indicators.Here is a three-month moving average overlay of each since 2001 (for those with data).

Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions - this averages out to approximately zero for the average, which is flat and neither expanding nor contracting.

Here are the remaining four monthly manufacturing indicators that we track:

Texas Manufacturing Outlook Survey (TMOS)

Kansas City Manufacturing Survey

Empire State Manufacturing Survey

Fifth District Manufacturing Survey (Richmond)

Regional Fed Overview