The Philly Fed Business Outlook Survey again declined.

Analyst Opinion of the Philly Fed Business Outlook Survey

Overall, this report was about the same as last month as key elements were mixed

This is a very noisy index which readers should be reminded is sentiment-based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive than the others recently.

The index moved from 21.9 to 19.4. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 14.6 to 35.6 (consensus +25.0).

Manufacturing activity in the region continued to grow, according to the firms responding to the August Manufacturing Business Outlook Survey. The survey's current indicators for general activity and shipments declined from July's readings but remained elevated, while the new orders indicator rose. Additionally, employment increases were more widespread this month, and both price indexes remained elevated. Most future indexes moderated this month but continue to indicate that the firms expect growth over the next six months.

Current Indicators Remain Positive

The diffusion index for current activity decreased 3 points to 19.4 in August, its fourth consecutive decline after reaching a long-term high reading in April (see Chart). Twenty-eight percent of the firms reported increases in current activity this month, while 9 percent reported decreases. The index for new orders increased 6 points to a reading of 22.8, while the current shipments index fell 6 points to 18.9 in August. Nearly 34 percent of the firms reported increases in shipments this month, exceeding the 15 percent that reported decreases.

Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders improved and are in expansion whilst unfilled orders declined but remain in expansion.

This index has many false recession warnings.

Summary of all Federal Reserve Districts Manufacturing:

Richmond Fed (hyperlink to reports):

Kansas Fed (hyperlink to reports):

Dallas Fed (hyperlink to reports):

New York Fed (hyperlink to reports):

Federal Reserve Industrial Production - Actual Data (hyperlink to report):

Holding this and other surveys Econintersect follows accountable for their predictions, the following graph compares the hard data from the Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (red bar) to the Philly Fed survey (yellow bar).

In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.

Caveats on the use of the Philly Fed Business Outlook Survey:

This is a survey, a quantification of opinion - not facts and data. Surveys lead hard data by weeks to months and can provide early insight into changing conditions. Econintersect finds they do not necessarily end up being consistent compared to hard economic data that comes later, and can miss economic turning points.

This survey is very noisy - and recently showed recessionary conditions. And it is understood from 3Q2011 GDP that the economy was expanding even though this index was in contraction territory. On the positive side, it hit the start and finish of the 2007 recession exactly.

No survey is accurate in projecting employment - and the Philly Fed Business Outlook Survey is no exception. Although there are some general correlations in trends, month-to-month movements have not correlated with the BLS Service Sector Employment data.

Over time, there is a general correlation with real business data - but month-to-month conflicts are frequent.