US: Philadelphia Fed Survey

Thu Jan 15 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
General Business Conditions Index - Level 20.0 16.0 to 29.3 6.3 24.5 24.3

Abrupt slowing is the signal from the manufacturing report of the Philly Fed whose general conditions index for January fell to plus 6.3 from December's plus 24.3 (revised from 24.5). Growth in new orders, however, does remain solid at plus 8.5 though down from December's plus 13.6. The 6-month general outlook also is a positive, at a very strong 50.9 vs December's 50.4.

Now the weak readings led by shipments, which are in contraction at minus 6.9 vs December's plus 15.1, and employment, now also in contraction at minus 2.0 vs December's plus 8.4. Unfilled orders also are in the negative column, at minus 8.6 vs plus 2.7 in December. Price readings are soft with input price inflation moderating further and output prices now in modest contraction.

Though the headline index levels for this report and the Empire State report, released earlier this morning at plus 9.95, are similar, this report is signaling month-to-month slowing while Empire State is signaling month-to-month acceleration from a contractionary reading in December. The next report on January manufacturing will be next Thursday with the PMI flash. Tomorrow will offer key hard data on the sector with the industrial production report for December.

Market Consensus Before Announcement
The general business conditions index of the Philadelphia Fed's Business Outlook Survey was still very strong in December in the Philly Fed manufacturing region but just not as strong as November's great surge. The Philly Fed's general conditions index slowed to 24.5 from 40.8 in November. Outside of November, the latest reading was the strongest since March 2011. But details in the report do show across-the-board slowing including for new orders, at 15.7 versus November's 35.7 and unfilled orders at 1.5 versus 7.1.

The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. By tracking economic data such as the Philly Fed survey, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth so that it won't lead to inflation. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation. The bond market is highly sensitive to this report because it is released early in the month and is available before other important indicators.