US: Philadelphia Fed Business Outlook Survey

Thu Dec 17 07:30:00 CST 2015

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 1.2 -5.0 to 8.0 -5.9 1.9

The negative headline, below Econoday's low-end estimate, isn't even half of story for the December Philly Fed report which is pointing to another rough month for the nation's factory sector. The headline index came in at minus 5.9 for its third negative reading in four months. New orders have been in the negative column for the last three months, at a steep minus 9.5 in today's report. Unfilled orders, which popped up slightly in November, are back in the minus column and deeply in the minus column at 17.7.

Manufacturers in the Philly Fed's sample worked down their backlogs to keep up shipments which came in on the plus side at 3.7. But without new orders coming in, shipments are bound to fall. Employment, likewise, is bound to fall though it did hold in the plus column for a second month in a row at 4.1 in December. Ominously, price data are beginning to turn deeply negative, at minus 9.8 for inputs and minus 8.7 for final goods -- the latter an indication of weakening demand.

Another ominous detail in the report is a breakdown in the 6-month outlook, down more than 20 points to 23.0 which is low for this reading. Expectations for future orders are especially weak. Today's report falls in line with Tuesday's Empire State report and are both reminders that weak global demand, together with the breakdown in the energy and commodity sectors, are pulling down the nation's factory sector.

Market Consensus Before Announcement
The Philadelphia Fed manufacturing index has definitely been soft, ending two months of prior contraction in November but only barely, at a thin looking 1.9. New orders, however, remained in the negative column as did backlog orders and, understandably, employment as well. Results in this report are closely watched as a leading indicator for the nation's manufacturing sector as a whole and Econoday forecasters see no better than flat results for December, at a consensus of plus 1.2.

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.