Philly Fed Business Outlook:
The Pace Slows
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 6.5, down from the previous month's 19.8. The 3-month moving average came in at 16.2, down from 17.1 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Today's six-month outlook at 45.8 is a marked decline from last month's 60.8. Here are the introduction and summary sections from the Business Outlook Survey released today:
Manufacturing growth in the region continued in November but did not match the pace of growth in the preceding month, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth, but readings for each fell from October. The survey's indicators of future activity also moderated but continue to suggest general optimism about growth over the next six months.
According to respondents to the November Business Outlook Survey, the region's manufacturing sector continued to grow this month, although most broad indicators were lower than in the preceding month. Firms remained optimistic about future growth, although future indicators moderated from readings in October. Firms' employment forecasts for the next six months remained optimistic, with more than one-third expecting to add workers. (Full PDF Report)
Today's 6.5 came in below the 15.0 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. At this point the contraction in 2013 was shallower and the trend has been rising since late spring.
In the next chart we see the complete series, which dates from May 1960. The average absolute monthly change across this data series is 7.9, which suggests that the 13.3 point change from last month has some statistical significance.
The next chart is an overlay starting in 2000 of the General Activity Index and the Future General Activity Index — the outlook six months ahead. The declines for the latest month are comparable in magnitude.
The Philly Fed General Activity Index continues to be a key indicator to watch closely.