US: Philadelphia Fed Business Outlook Survey

Thu Sep 15 07:30:00 CDT 2016

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 2.0 -3.0 to 4.9 12.8 2.0

The headline and the details of the Philly Fed report continue to take their own paths, once again showing strength at the headline level, at plus 12.8 in September, and weakness elsewhere. New orders did move into the plus column, to 1.4 vs August's minus 7.2, but the gain is marginal. And unfilled orders remain very weak at minus 10.8. Shipments are in contraction this month, at minus 8.8, with employment at minus 5.3. Price data show some pressure for inputs but less for selling prices. This report, outside the headline, matches the weakness of the Empire State also released this morning. The nation's factory sector seems to be dead in the water.

Market Consensus Before Announcement
The Philadelphia Fed index has been flat at the headline level with details clearly negative. Both new orders and backlog orders contracted at their steepest rate of the year in August with employment sinking to its lowest reading of the whole cycle, since July 2009. Contraction in the workweek together with shortening delivery times have been further indications of weakness. Note that recent strength in actual factory orders and manufacturing production has not been signaled by this report.

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.