US: Philadelphia Fed Business Outlook Survey

Thu Oct 20 07:30:00 CDT 2016

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 7.0 2.0 to 15.7 9.7 12.8

Solid strength finally appears in the details of the Philly Fed manufacturing report where new orders and shipments are both stand outs this month. The headline index for October is a solid 9.7 and follows two months of gains including a year-and-a-half high of 12.8 in September.

But the headline index, which is not a composite, had been sending signals of strength that were not backed up by details in the report. Not anymore. Month-to-month growth in new orders, at 16.3 in October, is the strongest since November 2014 while shipments, at 15.3, are the second strongest since November 2014. Employment, at minus 4.0, is still in contraction but is the best reading since May.

There are weaknesses in the report, including continuing though slowing contraction in the workweek and easing confidence in the general outlook, but the strength in new orders points to wider strength ahead for the Mid-Atlantic manufacturing sector. These results, however, do contrast with weakness in the Empire State report earlier this week, setting up what should be an especially interesting run of anecdotal reports this month.

Market Consensus Before Announcement
The Philadelphia Fed index shot nearly 11 points higher in September to 12.8 but forecasters are calling for slowing in the October report to plus 7.0. New orders have been weak as have many other readings, including employment. The headline for this report does not always move in line with the details.

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.