MacroScope

Philly Fed – the nightmare index economists can’t grasp

“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.

U.S. state budgets battered by recession

Eighteen months into the worst recession in decades, and the pain of the downturn is reaching into nearly every U.S. state, city and municipality.

With ever more people out of work, consumer spending has dried up, depriving local government of sales tax revenue. The continued housing slump has wiped out real estate transfer taxes, while declining corporate profits have eroded business tax revenue.

From Maine to California, the slump has drained coffers at the very time that the cost of providing jobless benefits and healthcare has risen, straining public finances.