Global| Mar 19 2020Philadelphia Fed Manufacturing Index in March Signals Recession
by:Tom Moeller
|in:Economy in Brief
Summary
The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index deteriorated to -12.7 during March from 36.7 in February. It was the first negative reading since February 2013. An index of [...]
The Federal Reserve Bank of Philadelphia reported that its General Factory Sector Business Conditions Index deteriorated to -12.7 during March from 36.7 in February. It was the first negative reading since February 2013. An index of 11.0 had been expected in the Action Economics Forecast Survey. These figures are diffusion indexes where readings above zero indicate expansion. The percentage of firms reporting an improvement in business activity deteriorated sharply to 18% this month. The percentage reporting weaker conditions doubled to 30%.
Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. It slumped to 47.1 this month from 58.0 in February. Over the past twenty years, there has been a 60% correlation between the ISM-Adjusted Philadelphia Fed Index and q/q real GDP growth.
Each of the underlying series, which are sampled separately from the composite index, deteriorated in March. The new orders, order backlog series and delivery time series turned negative. The shipments series was barely positive as it fell to the lowest level since February of last year. The inventories series also declined sharply.
On the labor front, the employment index declined sharply to the lowest level since November 2016. A lessened 17% of respondents reported an increased level of hiring while an increased 12% reported a decline. During the last twenty years, there has been a 76% correlation between the jobs index and the m/m change in factory sector employment. The average workweek measure fell to the lowest level since October 2014.
The index of prices paid also weakened to a four-year low and was down sharply from its July 2018 high. A lessened 18% of respondents paid higher prices while a greatly increased 14% paid less. The index of prices received weakened to a nine-month low.
The Philadelphia Fed also constructs indexes of future activity. The expected General Business Conditions series reversed its February improvement. The future new orders, shipments and prices series deteriorated sharply, although expected employment and inventories improved.
The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists of southeastern Pennsylvania, southern New Jersey and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: new orders, shipments, employment, delivery times and inventories with equal weights (20% each). Each ISM-adjusted index is the sum of the percent responding "higher" and one-half of the percent responding "no change."
The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver's SURVEYS database. The expectation from the Action Economics Forecast Survey is available in AS1REPNA.
| Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) | Mar | Feb | Jan | Mar'19 | 2019 | 2018 | 2017 |
|---|---|---|---|---|---|---|---|
| General Factory Sector Business Conditions | -12.7 | 36.7 | 17.0 | 14.9 | 9.9 | 20.9 | 27.3 |
| ISM-Adjusted Business Conditions | 47.1 | 58.0 | 54.7 | 55.4 | 55.5 | 57.7 | 57.2 |
| New Orders | -15.5 | 33.6 | 18.2 | 6.4 | 14.1 | 21.0 | 25.3 |
| Shipments | 0.2 | 25.2 | 23.4 | 20.4 | 16.9 | 22.8 | 26.7 |
| Unfilled Orders | -7.4 | 7.4 | -3.7 | 5.3 | 7.7 | 7.0 | 11.8 |
| Delivery Time | -9.1 | 2.7 | -0.4 | 8.9 | 9.4 | 9.5 | 10.6 |
| Inventories | 1.7 | 11.8 | -2.3 | 16.0 | 5.1 | 7.2 | 2.8 |
| Number of Employees | 4.1 | 9.8 | 19.3 | 11.6 | 16.9 | 21.5 | 16.1 |
| Average Workweek | 0.5 | 10.3 | 5.2 | 10.1 | 9.8 | 15.9 | 14.9 |
| Prices Paid | 4.8 | 16.4 | 22.1 | 21.7 | 19.7 | 46.1 | 30.4 |
| Expectations - General Business Conditions; Six Months Ahead | 35.2 | 45.4 | 38.4 | 23.1 | 28.4 | 36.8 | 47.1 |
U.S. Leading Economic Indicators Show Surprising Improvement
by Tom Moeller March 19, 2020
The Conference Board's Composite Index of Leading Economic Indicators strengthened 0.8% during January following an unrevised 0.3% December decline. It was the largest increase since October 2017. The latest reading compared to a 0.4% rise expected in the Action Economics Forecast Survey. The series is comprised of 10 components which tend to precede changes in the overall economy.
Last month's strength was paced by large increases in the weekly initial claims for unemployment insurance and the building permits components. The factory orders for nondefense capital goods, stock prices, the yield spread between 10-year Treasuries & Fed Funds, consumer expectations for business/economic conditions, consumer goods orders and the leading credit index also contributed positively to the index. The length of the average workweek had a neutral effect and the ISM new orders index contributed negatively to the index change.
Three-month growth in the leading index improved to 2.5% (AR) following three straight negative readings. The y/y change of 0.9% compared to a 6.5% high in September 2018.
The Index of Coincident Economic Indicators rose 0.1% during January after holding steady in December, revised from 0.1%. The y/y change of 1.1% was the weakest since September 2016. Three of the component series contributed positively to last month's rise including payroll employment, personal income less transfer payments and manufacturing & trade sales. Industrial production contributed negatively to the change in the index.
Three-month growth in the coincident index of 1.9% (AR) remained down from 2.3% in August.
The Index of Lagging Economic Indicators held steady during January after an unrevised 0.1% dip in December. Contributing negatively to the index change were the average duration of unemployment and the change in factory sector unit labor costs. Contributing positively were the changes in C&I loans outstanding and in the services CPI, the business inventory-to-sales ratio, the ratio of consumer credit outstanding to personal income and C&I loans outstanding. The prime rate charged by banks and the business I/S ratio had neutral effects.
Three-month growth in the lagging index fell to 0.7% from 4.2% six months earlier.
The ratio of coincident-to-lagging economic indicators is considered another leading indicator of economic activity. It increased to a four-month high.
The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations are in the AS1REPNA database. Visit the Conference Board's site for coverage of leading indicator series from around the world.
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
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