Back in February I posted an article called “The bullish argument for the global economy” highlighting Goldman Sachs’ Chief Economist Jim O’Neill’s bullish view for the economy. O’Neill believed in February that a economic rebound was certainly possible due to fiscal and monetary stimulus. Paul Kasriel has made similar arguments.
While I do agree that fiscal and monetary stimulus have been great and may induce a cyclical rebound, I wanted to point out that he mentioned the Philly Fed Survey and the ISM surveys as potential leading indicators of recovery.
Both surveys are out and they have not been extremely robust.
Released on March 2nd, the ISM was marginally higher last month. But, with 50 as the border to recession, a PMI reading of 35.8 is deeply recessionary.
The Philadelphia Fed’s March Business Outlook Survey came out today and this is what it said (bolding mine):
The region’s manufacturing sector continued to contract this month, according to firms polled for the March Business Outlook Survey. Indexes for general activity, new orders, shipments, and employment remained significantly negative. Employment losses were substantial again this month, with over half of the surveyed firms reporting declines. Firms continued to report declines in input prices and prices for their own manufactured goods. Most of the indicators of future activity suggest that the region’s manufacturing executives expect declines to bottom out over the next six months, but the firms’ employment forecasts suggest continued weakness.
Indicators Reflect Further Contraction
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged higher, from -41.3 in February to -35.0 this month. Last month’s reading was the lowest since October 1990. The index has been negative for 15 of the past 16 months, a period that corresponds to the current recession (see Chart). Continued weakness was evident in all of the broad indicators this month. The survey’s current new orders index declined nearly 10 points, to -40.7, its lowest reading since July 1980. The shipments index increased six points, but this follows a record low in February. The survey’s current inventory index declined precipitously this month, from -24.3 to -55.6, its lowest reading in the history of the survey.
Basically, the Philly Fed’s survey was big fat bust. No matter, the market is up nearly 160 points as I write this. So, is this a harbinger of good things to come or should I expect Jim O’Neill to change his tune?
Sources
February 2009 Manufacturing ISM Report On Business® – ISM
March 2009 Business Outlook Survey – Federal Reserve Bank of Philadelphia