Note from Doug: Having lived for two wonderful years in Paoli, PA, a suburb west of Philadelphia just south of Valley Forge, I have a special interest in this regional indicator. But, more importantly, it gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index.

The Philly Fed's business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 24.5, a substantial decline from last month's 40.8. The 3-month moving average came in at 28.7, little changed from 28.0 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook slipped to 51.9 from last month's 57.7.

Here is the introduction from the Business Outlook Survey released today:

Firms responding to the Manufacturing Business Outlook Survey indicated that the pace of regional manufacturing activity remained positive but decreased in December. The survey's current indicators for general activity, new orders, shipments, and employment suggest growth; however, their values for this month were significantly lower than last month's. The survey's indicators of future activity show optimism about continued growth over the next six months but declined slightly from last month's readings. (Full PDF Report)

Today's 24.5 came in slightly below the 26.6 forecast at Investing.com.

The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.