Philly Fed Survey - Predicting Recession
Recessionary indicators continue to pile on. The Philadelphia Federal Reserve manufacturing index rolled in this morning at a -17.5. Yes, this was slightly better than last month's -30.7 read but the 6 month average has now dropped into contraction territory.
The index has now contracted in 3 of the last 4 months with the internals showing negative trends as well. New Orders slid to a -11.3 with Unfilled Orders at -10.4. It's important to note these contraction levels are below those of August.
There was also severe contraction in shipments, -22.8 which was worse than August's -13.9. Inventories piled up as shipments declined to 10.2 from August's -9.8. Unwanted inventory build will ultimately led to further decreases in production. One positive was an increase in employment but just barely with employment rising to 5.8 from -5.2. However, this is most likely very temporary given the contraction underway in orders and shipments and inventory builds.
Furthermore, the rising pressure on input prices is a concern, especially if they can't be passed along, as they rose to 23.2 from 12.8 in August. Prices received also rose, to 0.9 from -9.0 which is a positive but not enough to offset input pressures.
The Empire State report released earlier this morning, is clearly negative as well. Business conditions in the New York manufacturing region continued to contract at a steady rate. At -8.82 this is its fourth straight contraction month. New Orders, the most important leading indicator in the report, are also in the negative column for the fourth straight month at -8.00. Unfilled Orders slid to -7.61, negative for three months in a row, and Shipments fell hard to a -12.88. Employment declined to -5.46 this month.
Both of these reports are part of the STA/Mauldin Economic Index which comprises all of the Fed reporting regions, the NFIB survey, Leading Economic Indicators and the Chicago Fed National Activity Index. The composite index has now been below the 30 line for the last two months which generally indicates that the economy is already in, or about to be in, a recession.