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Providing Reliable Information on the Economy

Providing Reliable InformationIn 2009, policymakers, consumers, and other market participants sought reliable information about the state of the economy. In particular, they were looking for signs that the recovery from the severe recession was underway. The Research Department's surveys and indexes played a significant part in providing the needed economic information.

Business Outlook Survey

One main source of information was the Business Outlook Survey (BOS), a monthly compilation that tracks developments in the Third District's manufacturing sector by gathering information on such variables as new orders, shipments, inventories, employment, prices paid and received, unfilled orders, and delivery times.

According to Michael Trebing, senior economic analyst, the BOS's closely watched general activity index has generally dipped into negative territory and returned to positive readings remarkably close to the start and end dates of past recessions. The National Bureau of Economic Research (NBER) is the arbiter of such business cycle dates; however, it makes those determinations with significant lags. The BOS's more timely measures of activity in the local manufacturing sector often serve as indicators of changes in the national economic picture.

BOS ChartIn the most recent recession, the BOS's general activity index went below zero in December 2007 — the date the NBER eventually marked as the start of the current recession. The number reached zero in August 2009 and turned positive again the following month. "The BOS is a serious barometer of both the regional and the national economy," said Trebing, who noted that on or near the third Thursday of the month — the survey's release date — he gets phone calls and e-mail from analysts, economists, and forecasters from around the world.

Policymakers also watch the survey because it provides significant information about the economy in the Third District and reflects conditions in the national manufacturing sector. Why does a survey of manufacturing firm executives in Delaware, southern New Jersey, and eastern Pennsylvania get so much attention? There are several key reasons:

  • The manufacturing sector is more sensitive to changes in the business cycle, and therefore, changes in this sector can serve as an indicator of cyclical fluctuations in the whole economy as they develop.
  • Also, manufacturers in this District are a diverse group, mirroring the nation's manufacturing sector, and many of these firms serve national markets or have plants in other parts of the country. In addition, some of the respondent firms manufacture goods that are used as inputs for other firms that operate in the national market.
  • Furthermore, data for the survey results are collected over the first two weeks of the month, so the survey provides an early reading of that month's manufacturing data. This early reading leads many analysts to use the BOS numbers to predict the results of the monthly Institute for Supply Management's (ISM) survey, which measures manufacturing activity at the national level. The ISM survey is usually released about two weeks after the BOS.

About 10 years ago, the BOS began to include special questions on topics related to current events in the economy, such as how the recession was affecting capacity utilization, or the economic impact of key events such as the September 11th terrorist attacks and Hurricane Katrina.

Coincident Indexes

Market participants are not just interested in how the national economy is faring. The economic fortunes of the individual states are also important when business owners, government officials, or households make decisions.

To help track economic activity at the state level, the Research Department's regional section has developed monthly coincident indexes for each of the 50 states. The indexes summarize current economic conditions based on four variables: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements. They provide information about the states' individual business cycles, which are not necessarily in sync with the national business cycle.

Indexes ChartPublic interest in the coincident indexes increased in 2009 as users turned to these regional indexes to gauge their states' performance during the recession.The indexes offered a look at the recession from different vantage points: Indexes for coastal states with overheated housing markets showed substantial declines in economic activity, while the Plains states had less severe downturns. While our indexes suggest that some states are likely to have continued stress in 2010, they are pointing to improved activity in several other states.

"The national economy and the statistics that track it are really just aggregations of many smaller and unique economies. By studying the state coincident indexes, an analyst can see important trends that may predict national movements," said Jason Novak, senior economic analyst.

Survey of Professional Forecasters

The Real-Time Data Research Center in the Bank's Research Department is responsible for administering and compiling the results of the Survey of Professional Forecasters (SPF), a quarterly survey of forecasters from around the country. It's the oldest quarterly survey of macroeconomic forecasters in the U.S.


The SPF asks participants to project the course of 24 economic variables, including gross domestic product (GDP), inflation, and unemployment. The survey also asks its participants to indicate the degree of uncertainty in their projections: Knowing the uncertainty of a forecast can sway an economic policy decision.

"For example, a projection of strong growth paired with a strong degree of certainty could lead to a decision that is radically different from one made when that same forecast is paired with a strong degree of uncertainty," said Thomas Stark, assistant director and manager in the Real-Time Data Research Center.

In fact, in 2009, the Research Department, in conjunction with the Board of Governors, added questions to the survey to elicit further information about measures of uncertainty in the forecasters' projections. As explained by Federal Reserve Governor Daniel Tarullo in congressional testimony, the information collected with these questions helped to provide the Federal Reserve System with "better assessments of the likelihood of severe macroeconomic outcomes." The forecasts collected in the SPF were then used to help design the economic scenarios for the Supervisory Capital Assessment Program, or stress test, conducted by the Fed and other federal bank regulatory agencies in 2009. The questions were so useful that the Philadelphia Fed decided to keep them in the 2010 surveys to help the Federal Reserve System in its banking supervision and monetary policy work.

Like the other surveys and indexes produced by the Research Department,SPF Chartthe SPF can offer early signs of the economy's direction. In fact, the SPF was hinting that all was not right in the economy as early as 2006. "Late in 2006 the survey's well-known measure of the risk of a downturn in real GDP — the anxious index — began to signal increasing levels of risk," said Stark. "This was a year ahead of the peak in the expansion and two years ahead of the NBER's December 1, 2008, announcement that the peak had occurred in December 2007. The index continued to signal rising risk levels over the period leading up to the beginning of the recession. More recently, the anxious index has retreated to levels that are consistent with the early stages of a recovery."

Aruoba-Diebold-Scotti Business Conditions Index

In January 2009, the Real-Time Data Research Center began publishing the ADS business conditions index, which tracks real business conditions using real-time data based on indicators such as weekly initial jobless claims, monthly payroll employment, and quarterly real GDP. Named for its developers (economists Boragan Aruoba, Frank Diebold, and Chiara Scotti), the ADS summarizes economic conditions using a blend of high-frequency and low-frequency information.

"We receive a large amount of data about the economy over time — things like industrial production, retail sales, unemployment data, and GDP. And these data come out at different times — weekly, monthly, and quarterly. ADS ChartThe ADS summarizes a subset of that mixed-frequency data to provide information on the state of the economy. It gives us a snapshot of the economy in real time," said Keith Sill, assistant vice president and the center's director.


Together, the Business Outlook Survey, the coincident indexes, the SPF, and the ADS — along with the other surveys, indexes, and analyses produced by the Research Department — contribute substantially to satisfying the ongoing demand for current and forward-looking information about the economy.