The notion of a soft patch in the domestic economy continues to grow as more economic data emerges and confirms this thought. This morning the Philadelphia Fed’s Business Outlook Survey for May was released and its findings showed further evidence that the manufacturing economy has weakened in recent months.
More specifically, the survey’s diffusion index, which is its broadest measure of manufacturing conditions decreased from 18.5 in April to 3.9, the lowest reading since last October. While the month over month decline in May is troublesome, what is more alarming is the sharp fall in survey’s future general activity index, which fell by 17 in May to 16.6 after registering a 29‐point decline in April.
These two data streams follow the month over month decline in May for the Empire Manufacturing Index as reported earlier this week as well as weaker than expected April and May data for housing starts, building permits and industrial production.
It would seem the recent revision by the National Association of Business Economics (NABE) that reduced its economic growth projections for 2011 was rather timely. While the NABE reduced its real gross domestic product (GDP) forecast for 2011 to up 2.8 per cent from its February prediction of up 3.3 per cent, that revision largely reflected weaker-than-expected growth in the first quarter of 2011. Keep in mind that it was only several months ago that economists raised their GDP forecasts for 2011.
With economic data in April and May trending lower, how long until the NABE and other forecasters start to revisit their expectations for the second quarter of 2011 as well as the back half of the year?
More as it develops.