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Philly Fed Business Outlook: Surprising 8.5 Point Jump Indicating Expansion

June 18, 2015

by Doug Short

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. 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 gauge of General Activity came in at 6.7, down from last month's 7.5. The 3-month moving average came in at 15.2, up from 6.79 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was up at 39.7, versus the previous month's 33.9.

Today's 15.2 came in well above the 8.0 forecast at Investing.com.

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

Manufacturing conditionsin the region improved in June, according to firmsresponding to this month’s Manufacturing Business Outlook Survey. Indicatorsfor general activity, new orders, and shipmentsremained positive and increased over their readingsin May. Employment and average work hoursincreased, on balance, at the reporting firms. Firmsreported higher pricesfor raw materials and other inputsin June compared with reported price decreasesin recent months. The survey’sindicators of future activity suggest that firms expect continuing growth in the manufacturing sector over the next six months.(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. 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. For proof of the high volatility of the headline indicator, note that the average absolute monthly change across this data series is 7.7.

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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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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)