US: Philadelphia Fed Business Outlook Survey

Thu Apr 16 09:00:00 CDT 2015

Actual Previous
General Business Conditions Index - Level 7.5 5.0

A headline gain for the Philly Fed index, to 7.5 for its April reading vs 5.0 for March, masks slowing in new orders, at only 0.7 to show the least monthly growth in nearly two years, since May 2013. And backlog orders, and minus 7.1, are in contraction for a second straight month. These order readings, to be blamed in part on export weakness, are very similar to those in yesterday's Empire State report with the thrust of both reports pointing to slowing ahead for a manufacturing sector that is already stalling.

Shipments are already in negative ground, at minus 1.8, though employment, also like yesterday's Empire State report, is strong, at 11.5. But employment is certain to come down if orders don't pick up and shipments continue to shrink.

In another sign of weakness, price readings in this report are actually deflationary, unlike most other reports where readings are flat to soft. Prices paid are at minus 7.5, the second straight month in the negative column, with prices received at minus 4.1, the fourth straight negative reading.

Aside from orders and employment, there's another similarity to this and the Empire State report and that's the 6-month outlook which is increasingly upbeat, at 35.5 in today's report for a 3.5 point gain. The gain here suggests that manufacturers see the current trouble as only temporary.

Not all the news out of today's report is negative -- but much of it is. The Philly Fed and the Empire State reports are not pointing to an early second-quarter start for the manufacturing sector.

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.