03) Economic Indicators: Business Outlook Survey

by · October 16, 2010

What It Is

Business Outlook Survey is also called the Philadelphia Fed Report, as it is released by the Federal Reserve Bank of Philadelphia. It is a monthly report that can be obtained every third Thursday of the month. The information found in the report reflects that of the present month.

Basic Information

The BOS is one of the oldest and significant regional reports (there are around 15 of them covering different areas in the United States). The survey was first conducted sometime in May 1968.

Unlike other kinds of reports, or indicators such as house starts, Business Outlook Survey only covers three locations: Delaware, Pennsylvania, and New Jersey, collectively known as the tri-state.

The survey is conducted in correlation with the Purchasing Managers Index Report, or PMI. Like any other survey, the chosen participants or respondents have to share their outlook on certain areas, such as the economy, employment, shipments and inventories of goods, as well as prices they are paying, in terms of being same, worse, or better.

Because the median value of the report is zero, the results of the survey can be expressed in positive or negative values. When there’s an expansion, the value goes up and thus above zero. If there is contraction, it goes down or to a negative value.

How the Report Is Valuable

The Philadelphia Fed Report is an extremely relevant report, since it covers the general outlook for the present month. Moreover, investors can obtain the report before the close of the month. The information found in the survey can be very helpful for the purpose of forecasting. From it, they are able to determine the potential company sales and energy prices, to name a few examples. The questions can also be made timely.

The report is also very easy to understand. It has been used by investors together with the NAPM Index of Chicago and, of course, the PMI Report. In fact, you can already predict the possible changes in the PMI or the movement of the market if the report showcases significant changes.

You can also obtain direct feedback from the Federal Reserve Bank.

Things to Watch Out For

The Business Outlook Survey has several limitations. For one, it covers only a very small area, just three states. Furthermore, it excludes other industries and is solely focused on manufacturing investors and businesses. The small sample size doesn’t really provide a very good idea of what general public mood and thus is hardly considered a major market shaker. And like any survey, the answers of the respondents are based on their own opinion and without careful consideration of certain facts.  The small sample size and the monthly reporting can also lend to inherent volatility, with significant spikes or changes occurring within each month.

Despite these shortcomings, the BOS  is essential because around 75% of the PMI report is derived from it, so you can obtain a good picture of the outlook of the general market. Its timeliness is also something that makes it very valuable. Nevertheless, with its limitations this should not be your sole basis in making business analysis.

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