Does an Odd Economic Tidbit Reveal Surging Optimism?

The Philadelphia Fed Index, a leading measure of US economic activity, beat analysts’ expectations. But what caught our eye—and many others’ as well—was a detail within the survey: the future index jumped more sharply than it has since February 1991, when the first Gulf War ended unexpectedly quickly.

The Philly Fed Index, released this morning, declined at a rate of 1.9 in September, compared to its 7.1 rate of decline in August. While that’s still weak (it indicates continued contraction in manufacturing for the region), it’s relatively good news that manufacturing is contracting less rapidly. Some other details are very soft: a sharp decline in shipments is probably capturing some of the production decline we’ve seen in industrial production data.

But the future index rose from 12.5 to 41.2, its best reading since January and its largest spike in nearly 22 years. That’s significant. Of what?

The future index reflects manufacturers’ optimism about the next six months. That covers the November election and the fiscal cliff, two major sources of uncertainty manufacturers have been grappling with.

We think a surge in optimism of that magnitude is very possibly an indication that manufacturers expect the fiscal cliff to be averted.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

Joseph G. Carson is US Economist and Head of Global Economic Research at AllianceBernstein.

Joseph G. Carson

Joseph G. Carson joined AB in 2001. He oversees the Gobal Economic Research group, which provides economic analysis for the firm, and has primary responsibility for economic and interest-rate analysis of the US. Previously, he was chief economist of the Americas for UBS Warburg . Over the years, he has also served as the chief US economist at Deutsche Bank, as chief economist at Chemical Bank and Dean Witter, and as senior economist at Merrill Lynch. Carson began his professional career in 1977 as a staff economist in the US Department of Commerce and represented the department at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. Early in his career, he also held a variety of roles at General Motors. Carson was named to the Institutional Investor All-Star Team for Fixed Income while at Deutsche Bank, He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Location: New York

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