US: Philadelphia Fed Business Outlook Survey

Thu Sep 21 07:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 18.0 12.0 to 20.0 23.8 18.9

There are few hints of indirect hurricane dislocations in the Philly Fed report where strength is simply enormous. The headline index jumped nearly 5 points in September to 23.8 which is well beyond Econoday's high estimate.

New orders are pouring in this month, up more than 9 points to 29.5 for among the very strongest readings of the 8-year economic expansion. Unfilled orders are at 17.0, up 3.5 points to indicate one of the very strongest monthly builds in the 50 year history of this report. Shipments are moving out the gates at a frenzy, at 37.8 which again is one of the best on record.

One area where hurricane effects may be at play is delivery times which are lengthening sharply this month to 14.5 and again one of the highest readings on record. Prices are showing unusually strong pressure with costs at 34.4 and selling prices up more than 9 points this month to 22.8 which is one of the strongest readings in 30 years.

The spectacular results don't stop as the 6-month outlook is up nearly 13 points to 55.2 for one of the best readings of the expansion. One area that this is not rising, however, and that's employment where growth slowed 4.5 points to 6.6. Weakness here, judging by the all strength, may only reflect lack of available workers.

This report, among all the regional reports, has consistently showed the most strength this year, strength however that contrasts with little better than mixed results in actual factory data at the national level. This is a reminder that the Philly Fed's results are based on voluntary responses from what is often a small sample numbering no more than a couple of hundred companies.

Market Consensus Before Announcement
The Philadelphia Fed's manufacturing sample has been draining the dictionary of superlatives since late last year, showing enormous strength even at the same time that hard data on the factory sector have been mixed. The sample in August reported another month of very sharp growth in new orders and the largest build in backlog orders in 25 years. The Mid-Atlantic states were not affected directly by Hurricane Harvey but prices and delivery times could show pressure as they did in the Empire State report. The September consensus for the Philly Fed index is 18.0 vs August's 18.9.

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.