US: Philadelphia Fed Business Outlook Survey

Thu Nov 17 07:30:00 CST 2016

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 8.0 5.0 to 11.3 7.6 9.7

The Philly Fed continues to pick up signs of strength in the long dormant factory sector. The November headline looks tame at plus 7.6 but most of the details are very strong. New orders are up for a third month in a row and at very sharp multi-year high of 18.6. And unfilled orders make a rare appearance in the plus column at 4.1.

Shipments are at 19.5 and inventories, which are usually negative, are also in the plus column and strongly so at 13.4. Underscoring all the strength is solid and sudden life in prices with input costs surging nearly 20 points to 27.5 and selling prices also surging nearly 20 points to 16.0. The weakness in the report is in employment which continues to run in the negative column, at minus 2.6. However, if the strength in orders is repeated in the coming months, new hiring in the Mid-Atlantic factory sector is bound to begin.

Today's report adds to a mix of indications, including the details of yesterday's industrial production report, that the factory sector appears to be accelerating into the 2016 close.

Market Consensus Before Announcement
The Philadelphia Fed index is on a 3-month winning streak with the new orders index on a 2-month streak that includes outstanding strength in the October report. Another strong report would raise talk of a year-end rally for what has been a flat factory sector. Forecasters see the index holding steady in November at a respectable plus 8.0.

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.