Philly Fed Business Outlook: Activity Slows Significantly But Remains Positive

January 15, 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.

The latest gauge of General Activity came in at 6.3, a substantial decline from last month's 24.3 and the lowest reading since the -2.0 contraction in February of last year. The 3-month moving average came in at 23.6, down from 27.8 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was essentially unchanged at 50.9 versus the previous month's 50.4.

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

Manufacturing activity in the region increased modestly in January, according to firms responding to this month’s Manufacturing Business Outlook Survey. The survey’s current indicators for general activity and new orders fell from their readings in December, suggesting a slower pace of growth. Firms reported continued moderation in price pressures, attributable to lower energy costs. Overall, firms reported that lower energy prices were having overall net positive effects on manufacturing business. The survey’s indicators of future activity show continued optimism about continued growth over the next six months. (Full PDF Report)

Today's 6.3 came in well below the 19.9 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 7.8, which shows that the 18 point change from last month is a an outlier.

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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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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.


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