by Bespoke Investment Group
Today's Philadelphia Fed Business Outlook came in weaker than expected and showed the largest three month decline in the history of the index (-51.1). To the right, we highlight the three-month change of the overall index as well as each subcomponent of the main index. Strangely enough, even though the headline index for current and future conditions showed its largest ever three-month decline, most of the subcomponents did not.
In the chart below, we highlight the two other periods where the Philadelphia Fed headline index declined more than 40 points over a three-month period. In 1974, the index dropped 50.5 points in three months, and in November 1981, the index dropped 43.4 points. While the three month decline in the Philly Fed survey should not be dismissed, we would note that it is probably more than a coincidence that the index peaked in March, just when the major earthquake and nuclear meltdown occurred in Japan. Other factors have surely contributed to the slowdown, but we think it's hard to argue that some or much of the slowdown we have seen in the last three months is not related to Japan.
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