MacroScope

Will the U.S. economy continue coasting along at a slow but steady clip or does it actually risk tipping into a new recession? Tom Porcelli, economist at RBC Capital, says he’s concerned about a new trough from a little-watched Philadelphia Fed survey of coincident indicators.

Here’s another indicator flashing red. The three-month trend for the Philly coincident index (which captures state employment and wage metrics) fell to a fresh cycle low of +24 in August – it was +80 just three months ago.

A reading this low historically bodes ill for future economic activity. Looking back at the last five downturns, this index averaged +41 three months prior to the official start of the recession. We have decidedly crossed that threshold.

Ed Krudy contributed to this post

The Philadelphia Fed’s Mid-Atlantic manufacturing survey covers a pretty small chunk of an already shrunken U.S. factory sector. Still, analysts at Harris Bank have found that the survey’s employment component has been a pretty solid leading indicator of the monthly payrolls figures.

If the trend persists, then February’s report could be a bit of a letdown following a surprisingly robust gain of 243,000 jobs last month. The Philly Fed’s employment index dropped sharply in February to its lowest level since August.

According to Jack Ablin, Harris Bank’s chief investment officer:

For the last several months, the Business Outlook survey has been a keen predictor of the monthly change in the Bureau of Labor Statistics’ non-farm payroll. The survey came close to nailing last month’s 243,000 gain, even though economists expected a 140,000 pickup on average. Should the survey’s predictive power continue, investors could be disappointed with February’s BLS report. The Philly Fed survey implies roughly 50,000 net new non-farm payroll jobs added in February. Positive yes, but it would be a big momentum killer. Stay tuned. The payroll report is not due out until March 9th.

“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.