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Philly Fed Business Outlook: Another Month of Modest Increase

May 21, 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 survy 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 6.4, down from 5.9 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was little unchanged at 33.9 versus the previous month's 35.5.

Today's 6.7 came in below the 8.0 forecast at Investing.com.

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

Manufacturing activity in the region increased modestly in May, according to firms responding to this month's Manufacturing Business Outlook Survey. Indicators for general activity, new orders, and shipments were positive but remain at low readings. Employment increased at the reporting firms, but the employment index moderated compared with April. Firms reported continued price reductions in May, with indicators for prices of inputs and the firms' own products remaining negative. The survey's indicators 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 7.8.

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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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