The Philly Fed Business Outlook Survey insignificantly declined.

Analyst Opinion of the Philly Fed Business Outlook Survey

Overall, this report was worse than last month as key elements declined

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 31.5 to 30.7. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Econoday) 25.0 to 38.7 (consensus +30.8).

Manufacturing activity in the region continued to grow, according to the firms responding to the June Manufacturing Business Outlook Survey. The survey's indicators for general activity, new orders, and shipments remained elevated, although movements were mixed. Additionally, the employment index increased, while the price indexes climbed above last month's long-term highs. Most future indicators improved, suggesting that more firms expect overall growth over the next six months.

Current Indicators Remain Elevated

The diffusion index for current general activity edged down 1 point to 30.7 this month (see Chart 1). The index for new orders decreased 10 points to a reading of 22.2. Over 36 percent of the firms reported increases in new orders this month (down from 44 percent last month), while 14 percent reported decreases (up from 11 percent). The current shipments index rose 6 points to 27.2 in June. Over 41 percent of the firms reported increases in shipments this month, while 14 percent reported decreases.

On balance, the firms continued to report increases in employment, as the employment index increased 11 points, recovering its losses from last month. The majority of responding firms (52 percent) reported steady employment levels, and the share reporting increases (39 percent) exceeded the share reporting decreases (8 percent).

Econintersect believes the important elements of this survey are new orders and unfilled orders. New orders declined but remain in expansion whilst unfilled orders declined but remains 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 survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from 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.