US: Philadelphia Fed Business Outlook Survey

Thu Jan 18 07:30:00 CST 2018

Consensus Consensus Range Actual Previous Revised
General Business Conditions Index - Level 25.0 21.0 to 31.8 22.2 26.2 27.9

The Philly Fed's manufacturing index remains very strong though it did ease a bit in this month to 22.2 vs December's revised 27.9. New orders continue to build but at a slowing rate, at 10.1 vs December's outsized 28.2, while unfilled orders were actually drawn down, at minus 1.8 vs December's plus 12.8. And optimism is easing back in the sample as the 6-month outlook fell more than 10 points to what is still a very strong 42.2.

But that's where the soft spots end as shipments accelerated more than 6 points to 30.3, the workweek rose more than 5 points to 16.7, and employment held very solid at 16.8 yet nevertheless down nearly 3 points from December.

Price data speak to strength with inputs at 32.9 and selling prices at 25.1 which for the latter is up more than 12 points in the month and is unusually strong.

This report was the first to take off this time last year in what correctly signaled a healthy 2017 for the factory sector but far above the Federal Reserve's assessment which was underscored yesterday by weakness in the manufacturing component of the industrial production report and the sector's "modest" description in the Beige Book.

Market Consensus Before Announcement
New acceleration from an already enormously strong rate of growth was December's result for the Philadelphia Fed manufacturing index which is expected to slow a modest 1.2 points in January to 25.0. New orders poured in back in December with backlogs building and shipments moving out the door. Selling prices also showed traction in the last report.

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.