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

Director—Global Economic Research
Joseph G. Carson joined the firm in 2001. He oversees the Economic Analysis team for Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor’s All-Star Team for Fixed Income. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. 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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