US: Philadelphia Fed Business Outlook Survey

January 19, 2017 07:30 CST

Consensus Consensus Range Actual Previous Revised
General Business Conditions Index - Level 16.0 12.0 to 22.2 23.6 21.5 19.7

Standout is a modest word to describe the strength of the Philly Fed report for January which is signaling major factory acceleration across readings. General conditions are up nearly 4 points to 23.6 with new orders up more than 11 points to 26.0, best for both readings since November 2014. Unfilled orders are up more than 7 points to 10.7 for the best reading since March 2011 while employment is up more than 9 points to 12.8 which is the best since April 2015. Special superlatives belong to prices with input costs up nearly 4-1/2 points to 32.5 and the highest reading since February 2012 and selling prices up nearly 19 points to 26.8 to signal the best price traction of the entire economic cycle, since July 2008.

The gains in prices, especially selling prices, may have been skewed higher by beginning of the year price increases which however should be neutralized by seasonal adjustments. So the price gains are even above what's normally expected. Of all the regional reports, this one has been showing the most strength for the last several months and does contrast with Tuesday's Empire State which showed only modest strength. Still, the respondents to the Philly Fed are reporting unusually strong activity this month which is a good signal for what has been a struggling factory sector.

Market Consensus Before Announcement
The Philadelphia Fed index has been strongly signaling a move higher a still suffering factory sector. In the last report, the December index rose for a fifth straight month to a very strong 21.5 (since revised to 19.7 on updated seasonal adjustments). December is the highest reading since December 2014. Forecasters see some give back for the January index, at a consensus 16.0. New orders and general expectations have been two of the report's strongest 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.