US: Philadelphia Fed Business Outlook Survey

Thu Oct 19 07:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 20.2 15.0 to 25.8 27.9 23.8

The Philly Fed report continues to post very unusual levels of strength. October's headline of 27.9 is nearly 8 points above Econoday's consensus and more than 2 points above the high estimate. Employment, at 30.6, is a record in 48 years of this report's data. The unusual strength of demand together perhaps with lingering hurricane effects on the supply chain are making for the longest delivery delays on record, at 21.6.

Other October readings are also unusually strong but less so than September: new orders 19.6 vs September's 29.5, unfilled orders at 10.9 vs 17.0, shipments 24.4 vs 37.8, the 6-month outlook 46.4 vs 55.2. Philly's sample is building up inventories while price data show a 7-month high for inputs costs, at 38.1, but a dip back in selling prices to a still very solid 14.2.

This report together with Empire State's report on Monday are extensions of what have been unusually strong indications from regional reports, results that contrast sharply with much less strength in factory orders and outright contraction in manufacturing production. It's important to remember that regional reports are based on small sizes where responses are always voluntary. Still the strength of the regional reports, if nothing else, is pointing squarely at improvement ahead, at least to some degree, for the nation's factory sector.

Market Consensus Before Announcement
There are no words left to describe the intensity of strength being report by respondents to the Philly Fed manufacturing report. The headline, at 23.8 in September and well beyond Econoday's high estimate, only scratched the surface as new orders poured in at one of the strongest rates of the expansion with backlog orders and shipments among the very strongest in the 50-year history of this report. The consensus for the October index is 20.2.

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.