Philly Fed Index Contracts for Second Month

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Note from Doug: Having lived for two 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. Today's report shows a sharper contraction, moving from -5.8 last month to -12.5. Moreover, the 3-month moving average fell to -4.6, the eighth negative reading in nine months. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Here is the introduction from the Business Outlook Survey released today:

Manufacturers responding to the February Business Outlook Survey reported declines in activity this month. Following reported growth in late 2012, indicators for general activity and new orders have now registered negative readings for the past two months. However, indicators for shipments and employment were slightly positive this month. The survey's broad indicators of future activity edged higher this month. (Full PDF 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.

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In the next chart we see the complete series, which dates from May 1960. The average absolute monthly change across this data series is 7.9, which suggests that the 6.7 point change from last month is not dramatic.

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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 latest Future reading shows increased optimism despite the drop in current conditions.

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

Source: Advisor Perspectives

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