by Calculated Risk on 4/17/2008 10:12:00 AM

The typical investment pattern is for residential investment to lead the economy into a recession, and then for non-residential investment to slump as the recession starts. The Philly Fed survey this month provides more evidence that the cycle is following the typical pattern (see the special question on capital spending at the bottom of this post).

Here is the Philadelphia Fed Index released today: Business Outlook Survey.

Click on graph for larger image.

This graph shows the Philly index vs. recessions for the last 40 years. There are a number of times the index was below zero without a recession - so the reading today doesn't mean the economy is in recession. However it is very likely that the economy is already in recession.

From the release, weaker conditions and higher prices and lower capital spending:

Indexes Reflect Weaker Activity

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, deteriorated from -17.4 in March to -24.9 this month (see Chart). The index has remained negative for five consecutive months
...
Firms Report Higher Prices

A sizable share of the firms continued to report higher prices, both for inputs and for their own products. Fifty-five percent of manufacturers reported higher input prices this month, although the prices paid index edged slightly lower, from 54.4 in March to 51.6..
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Six-Month Outlook Improves But Remains Cautious

The future general activity index rebounded from a reading of -0.5 in March, rising to 13.7, its highest level in five months.

Special Question on Capital Spending Plans

With regard to capital spending, the percentage of firms indicating that they had decreased their capital spending plans (27 percent) was greater than the percentage indicating they had increased them (19 percent) since January. Moreover, since January, 10 percent of the firms indicated that they had either delayed planned capital spending until later in the year or postponed it indefinitely.