MacroScope

Philly Fed – the nightmare index economists can’t grasp

August 18, 2011

“Horrendous”

“Stink”

“Meltdown”

These are just a few of the (printable) words analysts have used to describe the August release of the Philadelphia Fed’s factory activity index.

And well they might — the Philly Fed has proven to be a nightmare indicator for economists. At -30.7 in August, the index came in far below the consensus forecast for a rise to +3.7 from July’s +3.2. Even the lowest forecast was only -10.

That’s probably one of the worst misses the Reuters polling team can recall in recent memory.

For three out of the past four releases, the Philly Fed number has come in below even the lowest forecast from dozens of economists. But that August result is something else.

While we’ve noted extensively how economists have been far too optimistic in their forecasts in general, perhaps now we’ll start seeing wholesale downgrades to U.S. growth forecasts.

After all, the Philly Fed doesn’t lie:

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