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Philly Fed Business Outlook: Remains Positive Despite Decline

July 16, 2015

by Jill Mislinski

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 5.7, down from last month's 15.2. The 3-month moving average came in at 9.2, fractionally down from 9.8 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was up at 41.5, versus the previous month's 39.7.

Today's 5.7 came in well below the 12.0 forecast at Investing.com.

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

Manufacturing activity in the region increased modestly in July, according to firms responding to this month’s Manufacturing Business Outlook Survey. Indicators for general activity, new orders, and shipments remained positive, although they declined from their readings in June. Employment was essentially flat at the reporting firms this month. Firms reported higher prices for raw materials and other inputs in July, but prices of manufactured goods were reported as mostly steady. The survey’s index of future activity improved slightly, however, indicating 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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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 (updated after the last monthly Regional update, which is Richmond at the end of the month).

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)