US: Philadelphia Fed Business Outlook Survey

Thu Apr 19 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 20.1 18.0 to 25.0 23.2 22.3

The headline for the Philly Fed index, which came in ahead of expectations at 23.2, doesn't tell April's story which is one of slowing and price friction. New orders, at 18.4 this month, have been cut in half with backlog orders, at 7.8 vs 20.1, more than half. Shipments are down nearly 10 points to 23.9.

The report's text basically offers just numbers but indications of tariff effects are visible. Prices paid jumped nearly 14 points to 56.4 for the highest reading in 7 years. And prices received jumped more than 9 points to 29.8 which is a 10-year high and an echo of yesterday's Beige Book which said higher metal prices are being passed through, at least to some customers.

Whether the inflation push is welcome can be debated, but the slowing in orders is probably a positive. The Philly Fed's sample has been reporting more business than it can handle with capacity stress once again a major theme: delivery times at 20.7 are up nearly 7 points to indicate the longest delays in 50 years of records; the workweek is up nearly 9 points to 21.6 for one of heaviest on record; while employment at 27.1 is up a point-and-a-half and just off expansion highs.

One indication that is relatively stable, in contrast to Monday's Empire State report, is only a moderate decline in 6-month optimism, down more than 7 points to a still solid 40.7 which nevertheless is the least optimistic since last July.

The bottom line for this report is slowing order growth with tariff effects inflating price readings but only having a limited impact on optimism. Watch for the Richmond Fed's manufacturing report on Tuesday's calendar.

Market Consensus Before Announcement
Details of recent Philly Fed reports have been among the strongest in the report's 50-year history especially for the two most fundamental readings of all: new orders and backlogs. Econoday's April consensus for the headline index is 20.1 in what would be little changed from March's 22.3.

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.