Regional Fed Surveys Give Early Insight Into National Economic Indicators, but Headline Indexes Not Always Most Relevant
For immediate release: October 14, 2014
Dallas Fed’s Texas Manufacturing Outlook Survey’s Growth Rate of Orders Index Performs Well Forecasting National Indicators
DALLAS—Regional Federal Reserve Bank manufacturing surveys can provide important insight into national economic conditions, but analysts may not be focusing on the best-performing indexes drawn from each survey, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.
In “Fed Manufacturing Surveys Provide Insight into National Economy,” Dallas Fed economists find the top-line, general business activity measures from the regional surveys may not always be the most-correlated indexes with three key national economic activity indicators.
Regional manufacturing surveys are produced by five Federal Reserve Banks: New York, Philadelphia, Richmond, Kansas City and Dallas.
“The five regional Fed manufacturing surveys provide timely and relevant information about their respective regional economies, but they differ in the extent to which they reflect national economic activity,” the authors write.
The authors’ analysis of the indexes in the Dallas Fed’s Texas Manufacturing Outlook Survey showed the growth rate of orders index, not its general business activity index, performed best in terms of explanatory power for the three indicators of national economic activity: the ISM manufacturing index, industrial production growth and payroll employment growth. The three are, themselves, often viewed as a bellwether of overall U.S. economic activity.
A comparison of indexes from the regional surveys found that the Dallas Fed’s growth rate of orders and the Richmond Fed’s composite index performed best in national indicator regressions. The Philadelphia Fed general business activity index performed best in forecasting the ISM manufacturing index, while the Dallas Fed growth rate of orders index did best in forecasting industrial production.
“Still, the appropriate performance measure for each regional Fed survey is the extent to which each reflects economic activity in its district; after all, none of the regional Fed manufacturing surveys were designed to track the national economy,” the authors state.
The Texas Manufacturing Outlook Survey is released monthly on the Dallas Fed’s website.
Federal Reserve Bank of Dallas