Philly Fed Survey - 2012 Revisions Show Much Weaker Economy
Here is the problem with all economic analysis - data revisions. Each month economists, analysts and the media work off reported numbers to make assumptions about the economy. However, the problem is that most of the assumptions made generally wind up being wrong when the data is revised. This is one reason why predicting recessions is so difficult. Currently, there are many that foresee "no recession" in the coming months and that may well be the case. However, as I have discussed previously, the problem that exists for me, any other student of the economy, is that we are all working with lagging data that continues to be revised at much later dates. Waiting on these data revisions is specifically why the National Bureau of Economic Research's (NBER), who officially dates recessions in the U.S., announcements are always months after the recession actually started.
This week the Philadelphia Federal Reserve issued their revisions to the widely followed Philadelphia Federal Reserve Survey for 2012. The chart below shows the difference to the "Current General Activity" portion of the survey which is what is reported by the media.
What is important to notice is that the survey overstated both strength and weakness in the survey all year long. However, the deterioration in the subcomponents was just as notable particularly in the areas that most directly affect employment - backlogs, and new orders.
Furthermore, future expectations have been sharply declining since September. The outlook for overall activity, new orders, shipments, backlogs, and employment have all been negatively impacted since the election. While future expectations of capital expenditures have risen during the last quarter this is most likely a function of plans to increase productivity to preserve compressing profit margins.
Regardless, there are few relative positives and the revisions in the data for 2012 showed a much weaker environment than previously believed. In the coming months ahead we will get the annual revisions to incomes, spending, and employment which are all primary constituents of the GDP calculation and the determination of a recession. While I currently do not expect a recession in the near term we cannot rule out the possibility of one later in 2013 due to higher taxes and potentially larger than expected cuts in spending. We remain conservatively invested until we are past the debt ceiling debate and have more clarity on the direction and trend of the markets.