The Philadelphia Federal Reserve's general business conditions index – a widely used gauge of the health of the region's manufacturing sector – plunged to a reading of minus 24 in February, from minus 20.9 in January. Negative readings indicate a contraction in activity, while positive readings denote expansion. This was the third straight negative reading for the index and its lowest level since February 2001. The sudden slide into negative territory is reminiscent of the plunge seen in the Dec 2000 – Mar 2001 period, just before the
2001 recession.
The Philly Fed index, whose history dates back to May 1968, has proved to be a fairly reliable gauge of business cycle turning points and often – but not always – a prelude to the ISM index, the most prominent of survey-based manufacturing indicators. The Philly Fed survey, however, differs from the ISM in that it is not a composite of separate metrics of activity; if an ISM-type of weighting of the Philly Fed sub-indexes were done, it would indicate a reading of 45.9 in February from 46.6 the prior month (source: Bear Stearns Research). This, coupled with the recent Empire State Survey raise the chances that the national ISM index, which has held fort thus far, will dip below 50 for the month of February (slated for release on March 3).
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