Using Manufacturing Surveys to Assess Economic Conditions

28 Pages Posted: 5 Dec 2012

See all articles by Matthew Harris

Matthew Harris

Independent

Raymond E. Owens

Federal Reserve Bank of Richmond

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Date Written: 2004

Abstract

Regional economic data are highly valued by analysts, but data are often available only with long lags. The alternative, surveys, provide timely access to regional economic information, but relatively small sample sizes can jeopardize the accuracy of the results. Recognizing this tradeoff, analysts periodically verify the accuracy of survey information. Examination of the results from three surveys with relatively long monthly data histories — the Institute for Supply Management (ISM), the Philadelphia Fed's Business Survey, and the Richmond Fed's Survey of Manufacturing — reveals the following: The Richmond Fed Survey provides useful information about Fifth District economic conditions. The Purchasing Managers Index (PMI) component of the ISM survey is a good leading indicator of changes in U.S. Gross Domestic Product. The Philadelphia and Richmond Surveys correlate well with the ISM results but capture different information. When combined, the surveys provide especially good signals of changes in the ISM. The Richmond Survey is currently released after the ISM, substantially reducing its usefulness as an indicator of ISM results — though it remains a good gauge of regional economic activity. The analysis suggests the Richmond Survey could be made more valuable by computing a composite index of Fifth District manufacturing activity index and advancing the release date of the results.

Suggested Citation

Harris, Matthew and Owens, Raymond E. and Sarte, Pierre-Daniel, Using Manufacturing Surveys to Assess Economic Conditions (2004). FRB Richmond Economic Quarterly, vol. 90, no. 4, Fall 2004, pp. 65-92. Available at SSRN: https://ssrn.com/abstract=2184978

Raymond E. Owens

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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