Philly Fed Business Outlook: Rebound in March

By Doug Short
March 20, 2014

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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.


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 9.0, a welcome bounce from the previous month's -6.3. The 3-month moving average came in at 4.0, up from 3.2 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today's six-month outlook at 35.4 is an slight decline from last month's 40.2.

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

Manufacturing activity rebounded in March, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, and shipments increased and recorded positive readings this month, suggesting a return to growth following weather-related weakness in February. Firms' employment levels were reported near steady, but responses reflected optimism about adding to payrolls over the next six months. The survey's indicators of future activity reflected optimism about continued growth over the next six months. (Full PDF Report)

Today's 9.0 came in above the 3.8 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 off its post-contraction peak in September of last year.

 

 

In the next chart we see the complete series, which dates from May 1960. The average absolute monthly change across this data series is 7.4, which shows that the 15.7 point change from last month is fairly substantial.

 

 

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 Philly Fed General Activity Index continues to be a key indicator to watch closely.

 

 

 

 

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