US: Philadelphia Fed Business Outlook Survey

Thu Jul 16 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 12.0 9.0 to 18.9 5.7 15.2

It turns out that the Philly Fed's big jump in June was in fact a one-time wonder as the index slowed substantially in the July reading to 5.7 from 15.2. Growth in new orders is still respectable, at 7.1, but well down from June's 15.2. Likewise, shipments slowed to 4.4 from 14.3 while backlog orders fell into contraction at minus 6.3 from plus 3.7. Employment also fell into contraction, at minus 0.4 from 3.8.

The June reading for this report stood alone as really the only strong indication this year on the manufacturing sector, but the give back now in July puts the Philly Fed in line with other readings. The nation's manufacturing sector is being held down by weak exports and is a drag on economic growth.

Market Consensus Before Announcement
The Philadelphia Fed was the only manufacturing report to signal solid strength in June with a headline of 15.0. Forecasters see less strength this month but the consensus is still very respectable at 12.0. A breakout to the high estimate at 18.9 would raise talk of upside surprises for July's 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.