March 8, 2021

Off the Charts: From Philadelphia, Slowdown News

That possibility was raised this week by the abrupt fall in an economic indicator that normally receives little attention but that fell unexpectedly to a level that in the past has signaled a recession had either begun or was about to do so.

The Federal Reserve Bank of Philadelphia reported that its monthly business outlook survey of manufacturers in its region found that only 14.7 percent of them thought business was improving, while 45.4 percent thought conditions were worsening. As a result, the index , calculated by subtracting negative responses from positive ones, fell to minus 30.7. In July it had been a positive 3.2

The index has been around since 1968, and during that time there has been a recession every time it fell below minus 30, as can be seen in the accompanying chart.

The Philadelphia Fed survey also asks about various aspects of business. The figures for current shipments and for new orders also fell into negative territory.

“The most troubling part is the decline in new orders,” said Ryan Sweet, a senior economist for Moody’s Analytics. “Sentiment is so fragile now that businesses could be hunkering down.”

In the survey, 45.4 percent of companies reported business conditions were getting worse, compared with just 24.3 percent in July. The 21.1 percentage point increase was one of the sharpest moves ever for the index, and the worst since the number reporting deteriorating conditions rose 25.9 percentage points in October 2008, after the collapse of Lehman Brothers led to a credit crisis and turned a relatively mild recession into a severe one.

Michael Trebing, a senior economic analyst at the Philadelphia Fed, cautioned that the survey responses were received between Aug. 8 and 16, a period of extreme volatility in the stock market caused in part by a decision by Standard Poor’s to downgrade the credit rating of the United States. He said it was possible that news background contributed to the negative responses from companies.

Several regional Federal Reserve Banks conduct similar surveys, but most have not yet released August figures. The New York Fed’s survey also came out this week. It also showed a decline into negative territory, but the move was not as large.

The Philadelphia index is based on a survey of 150 companies in Delaware, southern New Jersey and eastern Pennsylvania.

Manufacturing is no longer the primary driver of the American economy, and of course that region might not be typical of the entire country. But manufacturing has been a strength of the recovery that began in the summer of 2009, and the new report adds to growing evidence that the sector’s recovery is losing steam.

Floyd Norris comments on finance and the economy at

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