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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 -6.3, a sharp decline from the previous month's 9.4. The 3-month moving average came in at 3.2, down from 8.3 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. However, today's six-month outlook at 40.2 is an increase from last month's 34.4.

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

Manufacturing activity was reduced in February, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, and shipments suggest moderate declines this month, but comments suggested that much of the weakness was attributable to the severe winter weather that affected the region during the survey period. Firms continued to add to their payrolls, but average work hours fell. Despite the weakness in current indicators, many of the survey's indicators of future activity improved this month, reflecting optimism about continued growth over the next six months. (Full PDF Report)

Today's -6.3 came in well below the 8.0 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.

(click to enlarge)

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.

(click to enlarge)

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.

(click to enlarge)

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

Source: Philly Fed Business Outlook: Contraction In February, But Future Outlook Strengthens