Federal Reserve surveys capture sentiment. They are reported monthly. Recently they have moved strongly higher. These moves higher are impressive. Businesses are saying that times are good. That sentiment seems to be reflected in stock markets.
As I try to be mindful of economic data, I see mixed signals. One of the things I track is capacity utilization (I’ve written about this before, see here and here). Capacity utilization data was reported today and remains at a relative low.
I offer these observations without further comment, other than to say they bear watching.
What is the Federal Reserve Manufacturing Survey?
The Federal Reserve conducts a monthly regional Survey of Manufacturing Activity. Manufacturing firms are selected to participate according to their type of business, location, and firm size. The survey is sent electronically to about 200 contacts and approximately 90 to 95 of those surveyed reply, reporting on various aspects of their business, such as shipments, new orders, order backlogs, inventories, and expectations for business activity during the next six months.
Participants indicate whether measures of activity increased, were unchanged, or decreased since the previous survey. The responses are converted into diffusion indexes by subtracting the percent reporting a decrease from the percent reporting an increase.
Here are a few recent surveys from Federal Reserve Districts which clearly shows an incredible spike-up of manufacturing in various regions of the U.S.
A few points of note: First, these graphs (images) are taken directly from the reports published by regional Federal Reserve branches. Note that the time courses are very long. As you look at these graphs, note that recent data has generally risen very sharply over the past two months after being at relatively low levels for approximately two years. Second, the Richmond Federal Reserve data has not yet demonstrated the same positive uplift. The graph is included here to have a diverse and hopefully unbiased representation. Regardless, Richmond is the outlier. By my read, business sentiment has turned unequivocally positive.
Sources: Empire State Manufacturing Survey (February 2017), Manufacturing Activity Strengthened; Producers’ Outlook Optimistic (January 2017), Texas Manufacturing Activity Continues to Expand (January 2017), January 2017 Manufacturing Business Outlook Survey, Kansas City Fed Survey: January Activity Expanded Moderately, Future Expectations Strong (January 2017), February 2017 Manufacturing Business Outlook Survey