Yesterday people were making a big deal about the Philly Fed Index collapsing from 43.4 to 18.5, a level last seen late last year.
In reality, it wasn’t that big of a deal. The key thing to bear in mind, as Calculated Risk points out, is that 18.5 indicates growth. In fact, it’s above average growth.
The problem is, people don’t understand how these surveys are constructed, so they don’t know what these numbers mean. 18.5 is the difference between the percentage of firms seeing positive improvements to business, and those seeing worsening, since the previous survey. So if you surveyed 100 companies, it would indicate that around 59 companies saw business improve vs. 41 who saw things worsen (we don’t know how much it worsened. It could be very little). Bear in mind that since the previous month was one of the best of all time, the bar is set very high for continued improvement.
Knowing how the survey works also shows how meaningless it is to talk about it falling back to levels not seen since last year. It doesn’t actually mean that 3 months of economic growth have been erased.
Also, as CR points out, while Philly was a disappointment, it was an awesome month for the Empire State Index, which measures the same thing, the same way.
Blended together, and cancelling out the noise, you get consistent signs of growth, which should trickle into another solid ISM.
This chart is useful.