US: Philadelphia Fed Business Outlook Survey

Thu Mar 19 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 7.0 2.0 to 12.0 5.0 5.2

Slow growth with weakness in orders is the common thread for both the Empire State report, released earlier this week, and now the Philly Fed where the general conditions index held little changed at 5.0 in March vs 5.2 in February. New orders, at 3.9, are not much above zero while unfilled orders are suddenly well below zero, at minus 13.8 in a sharp decline from February's plus 7.3.

Weakness in orders points to softness in shipments, which are already below zero at minus 7.8, as well as softness in employment which is struggling to stay above zero at 3.5. Price data show contraction for both inputs, at minus 3.0, and finished goods, at minus 6.4.

The early indications on March are not that positive in what would extend a series of weak months for the manufacturing sector, a sector that the FOMC noted yesterday is being hurt by weak exports tied to weak foreign demand and complicated by the strong dollar.

Market Consensus Before Announcement
The general business conditions index of the Philadelphia Fed's Business Outlook Survey softened modestly in February to 5.2 versus January's 6.3. But optimism, like the Empire State report, is cooling with the Philly Fed's 6-month outlook falling to 29.7 vs December's 50.9. The new orders index was a positive, still on the plus side at 5.4 vs January's 8.5. And unfilled orders are a special positive, rising to 7.3 from January's contraction of minus 8.6.

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.