Philly Fed Business Outlook: Essentially Flat Growth

by: Doug Short

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 gauge of General Activity remains positive at 1.3 but is fractionally lower than last month's 2.0. However, the 3-month moving average came in at -3.1, the tenth negative reading in eleven 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 Business Outlook Survey reported near steady business activity in April. The indicator for overall activity remained slightly positive this month, but other broad indicators were mixed. Indicators for new orders and employment were weaker this month. The survey's broad indicators of future activity suggest that firms expect continued growth, but optimism waned compared with last month....


The April Business Outlook Survey indicates essentially flat growth in the region's manufacturing sector this month. The indicators for general activity and new orders remained near their levels in March, but shipments showed some improvement. Employment levels edged lower, however. Although firms expect continued growth over the next six months, the survey's measures of overall expectations suggest diminished optimism this month. Firms continue to indicate modest hiring plans. (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.

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 0.7 point change from last month is statistically insignifcant.

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.

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