Well, there’s no two ways around this one. My muddle through thesis is looking excessively optimistic by some measures. If the Philly Fed is any measure, this economy is headed full speed for the cliff’s edge. The August survey showed the lowest level of manufacturing activity since March 2009! The data was weak across the board. Prices were down sharply while new orders, inventories and employment all posted sharp declines.
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a slightly positive reading of 3.2 in July to -30.7 in August. The index is now at its lowest level since March 2009 (see Chart). The demand for manufactured goods, as measured by the current new orders index, paralleled the decline in the general activity index, falling 27 points. The current shipments index fell 18 points and recorded its first negative reading since September of last year. Suggesting weakening activity, indexes for inventories, unfilled orders, and delivery times were all in negative territory this month.