Economic Quarterly

Fall 2004

Using Manufacturing Surveys to Assess Economic Conditions

Matthew Harris, Raymond E. Owens and Pierre-Daniel G. Sarte

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.

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