Does a 58-Point Increase in the Philly Fed Forecast Index Signal the End of Recession?

Includes: DIA, SPY
by: Mark J. Perry

The Philadelphia Fed reported yesterday that the Six-Month Indicators Show Continued Improvement:

Broad indicators of future activity showed improvement again this month. The future general activity index remained positive for the fifth consecutive month and increased 11 points, from 36.2 in April to 47.5. The index has now increased 33 points in the past two months (see chart above, click to enlarge). The indexes for future new orders and shipments also improved, increasing 13 and 14 points, respectively.

For the first time in eight months, the percentage of firms expecting employment to increase over the next six months exceeded the percentage expecting declines (26 percent versus 16 percent). The future employment index jumped 22 points, to its highest reading since last September. The six-month capital expenditure index showed a modest four-point improvement, increasing for the second consecutive month; at -0.2 the index is 22 points higher than its record low in March.

Notice in the chart above that in 2001 a 60-point increase in the forecast index signalled the end of the 2001 recession. Hopefully the recent 58-point increase in the future activity index since December 2008 is signalling the end of the current recession.

According to the Philadelphia Fed, "Most broad indicators for future business conditions improved markedly again this month, suggesting that an increasing number of the region's manufacturing executives expect a recovery in business activity before the end of the year."