The regional federal reserve banks conduct surveys of businesses in their jurisdictions. These are reported as diffusion indexes. Essentially, the surveys query businesses about a variety of topics and simply ask if things are better, the same, or worse. A diffusion index is the percent reporting “better” minus the percent reporting “worse.”
Mathematically, a value of minus ten (-10) could mean that 90 percent of businesses report conditions are stable and ten percent see deterioration. Alternately, fifty percent could be stable with twenty percent seeing improvement and thirty percent seeing worsening conditions.
Diffusion surveys do not indicate magnitude of effect, rather they indicate trends. If last month more companies saw improvement and this month more companies see worsening, it bears watching.
As with all economic data, there is no such thing as good numbers in a vacuum. Certainly improving conditions are better than worsening ones, but if predictions are for a diffusion index value of +15 and the results are for +5, this is disappointing despite being positive.
There are many components to the regional surveys, each with their own bits of information. I try to glance at the surveys as they are released. They are directionally informative and help me construct a picture of the economy.
Interestingly, the five regional fed surveys that reported recently all came in lower than economists expected. I’ve reported the headline “General business conditions” numbers below. I’ve also reported two of the sub-indexes which I find particularly noteworthy, namely new orders (which predicts future business) and employment (which describes hiring trends).
Note that the ISM-Chicago Business Survey reports data slightly differently. In this survey, numbers greater than 50 indicate expansion, less than 50 suggest contraction.
|ISM-Chicago Business Survey|
|Dallas/Texas Manufacturing Outlook Survey|
|New York (Empire State) Manufacturing Survey|
|Kansas City Manufacturing Survery|
|Fifth District (Richmond) Survery of Manufacturing Activity|
|Philadelphia Business Outlook Survey|
The shifts are not huge and not every value has declined in April. Still, the overall picture is one of declines. I take note and will watch to see if other data points suggest this is a trend.
Another interesting trend I have observed for a few months is that companies are paying higher prices for raw materials, but they are not able to pass on these higher prices to customers. This could put some pressure on corporate profits. . . . another thing to watch over time.
sources: April 2013 Empire State Manufacturing Survey; April 29, 2013 Chicago Fed Midwest Manufacturing Index; April 29, 2013, Texas Manufacturing Outlook Survey; April 2013 Philadelphia Fed Business Outlook Survey; April 23, 2013 Fifth District Survey of Manufacturing Activity; March 28, 2013 Kansas City Fed Manufacturing Activity Survey