Already some of those who said that the Japanese disaster would lead to a surge in global GDP (since disproven) are trying to validate that 3rd worst 2 months drop in the Philly Fed in history (43.4 in march, 3.9 in May) can be attributed to, you guessed it, Japan. Sorry. You can't. Goldman explains why: "We have no information on how much of the drop in the Philly survey over the past two months could have been related to supply chain issues associated with the Japanese earthquake, but this is not a region with an especially high concentration of vehicle manufacturing." So while other Fed districts that do have a substantial manufacturing exposure will likely collapse even more, but at least have a validation for their drop, the Philly Fed is indicative of nothing more or less than wholesale economic contraction, absent the "one-time" impact from Japan.
Full Goldman note:
1. The Philadelphia Fed's monthly manufacturing survey weakened sharply for the second month in a row. The headline index of "general business activity" fell to 3.9, from 18.5 in April and 43.4 in March. This still suggests factory sector growth, but only barely. Most of the detailed activity indexes also weakened - the new orders index fell to 5.4 from 18.8, the shipments index to 6.5 from 29.1, and the unfilled orders index to -7.8 from 12.9 - with the exception of employment, which rose to 22.1 from 12.3 in April. (We have no information on how much of the drop in the Philly survey over the past two months could have been related to supply chain issues associated with the Japanese earthquake, but this is not a region with an especially high concentration of vehicle manufacturing.) Price pressures eased a little but remain high in historical terms.
2. Existing home sales declined by 0.8% mom in April to an annualized rate of 5.05 million units. Consensus forecasts had expected a moderate increase. Home sales dropped in three of the four Census regions during the month, with the largest declines in the Northeast. The number of homes currently offered for sales was about unchanged after seasonal adjustment, at about 3.7 million units (the months supply of homes increased, but this was likely due to seasonal variation). The median sales price of existing homes increased by about 0.5% mom on a seasonally-adjusted basis-an encouraging turn after several months of weakness. Existing home sales prices are down 5% year-over-year.
3. Rounding out the weaker-than-expected data, the index of leading economic indicators fell by 0.3% mom in April. The consensus had expected a 0.1% increase.
At this point Jan Hatzius forgets to add that he is now long overdue to downgrade both his Q2 and H2 GDP forecast, as we have been predicting since January.