Future Expectations Made Six Months Ago vs. Today's Reality
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On Thursday, I noted Bloomberg's comment "Something Very Wrong" with the manufacturing sector.
More completely, Bloomberg stated "There may very well be something wrong with the manufacturing sector, at least in the Northeast where the Empire State index has been in deep negative ground for the last two months followed now by a minus 6.0 headline for the Philly Fed index."
With that comment, let's dig deeper into the latest Philadelphia Fed Business Outlook Survey.
Here is a chart that shows current conditions compared to manufacturer's expectations six month's from now.
Current vs. Future Activity
Future is Bright!
The Philadelphia Fed reported ...
Future Indexes Remained Generally OptimisticFuture Expectations vs. Reality
The survey’s broadest indicator of future growth edged slightly higher this month. The future general activity index increased 1 point, to 44.0, its highest reading since January. The future index for new orders, at 44.4, decreased 2 points, while the future shipments index, at 41.4, increased 4 points. Furthermore, 28 percent of the firms expect expansion in their workforce over the next six months, while 10 percent expect a reduction.
To check the usefulness of these future projections, I downloaded the data, then shifted the look-ahead projections by six months and plotted those forecasts vs. current conditions.
The above chart shows what manufacturers expected six months ago vs. what actually happened.
A major portion of the time, look-ahead sentiment vs. reality are inversely correlated. Note in particular, the sharp rise in expectations vs. the actual sharp decline (third purple box) that started in November or December of 2014.
Northeast?
As for Bloomberg's comment "There may very well be something wrong with the manufacturing sector, at least in the Northeast" here are some thoughts also posted earlier.
- Dallas Region: Dallas Fed Region Activity Plunges Well Below Any Forecast
- Kansas City Region: Kansas City Region Activity Remains in Deep Contraction
- Richmond Region: Regional Manufacturing Expectations From Mars.
Mike "Mish" Shedlock
