Thursday, February 19, 2009

Philly Fed manufacturing survey looks bad too

The Philadelphia Federal Reserve Bank released the February survey results of general business conditions in manufacturing for the Philly Fed region. Consistent with the Empire State survey results, the the report was bleak:
Conditions in the region’s manufacturing sector continued to deteriorate this month, according to firms polled for the February Business Outlook Survey. All of the survey’s broad indicators for current activity remained negative and fell from their already low levels in January.
The chart illustrates the survey results for the current and 6-month ahead business conditions across the Philly Fed's region since 1968. In February, current business conditions fell to -41.3 and has been negative for 14 out of the past 15 months. The manufacturing sector is suffering a severe contraction. These results suggest that the ISM national manufacturing survey will likely see a decline from its January bump, and that the contraction is ongoing.

On a brighter note, in net managers believe that business conditions will improve over the next six months for the second month. That means - if these managers are indeed prescient - that the manufacturing sector in the Philly Fed region will stabilize over the next five months!

On a more foreboding note, the survey included several additional questions that are pertinent to current market conditions:

1. Choose the statement that best characterizes your current inventory situation:
Too high and expected to decrease in first quarter 43.9%
About right for current economic conditions 43.9%
Too high and expected to increase in first quarter 6.1%

In net, managers understand that inventory levels are too high for market sales. This is just another sign that inventories will fall going forward, and that the inventory boost to Q4 GDP is all but a pipe dream for Q1 2009. Bad news.


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