Philly Fed Business Outlook: Manufacturing Activity 'Picked Up'

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. The latest gauge of General Activity came in at 22.3, up from the previous month's 9.3. The 3-month moving average came in at 17.1, up from 13.9 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Thursday's headline number is the third month of expansion but lower than the two previous months. The 3-month MA trend is the highest since March 2011. Here are the introduction and summary sections from the Business Outlook Survey released Thursday:

Manufacturing activity picked up in September, according to firms responding to this month's Business Outlook Survey. The survey's broadest indicators for general activity, new orders, shipments, and employment were all positive and higher than in August. The survey's indicators of future activity were significantly higher, suggesting improved optimism about growth over the next six months.


According to respondents to the September Business Outlook Survey, the region's manufacturing sector continued to grow this month. All the broad indicators were positive, with firms reporting a pickup in general activity, new orders, shipments, and hiring. Price pressures were slightly more widespread this month, with more firms reporting higher prices for their purchased inputs. Firms' outlook showed notable improvement this month, with a majority of firms now expecting to expand manufacturing activity over the next six months and one-third that expect to add workers. (Full PDF Report)

Thursday's 22.3 came in well above the 10.0 forecast at

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. At this point the contraction in 2013 was shallower and the trend has been rising since late spring.

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 13 point change from last month has some statistical significance. The average absolute monthly change in the 3-month MA is 4.0 in comparison to the latest 3.3 3-month MA.

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 a 19.3 point increase, which is even larger than the rise in General Activity.

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