US: Philadelphia Fed Business Outlook Survey

Thu Mar 15 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 23.0 20.0 to 26.8 22.3 25.8

Rarely in its 50-year history has the Philly Fed's manufacturing report shown such unusual strength and with it, unusual capacity stress. At 22.3 in March, the headline index is once again over 20 but its the combination of new orders, at 35.7 for an 11.2 point monthly surge, and unfilled orders at 20.1 and a 5.6 monthly gain, that is enormously strong.

Shipments are at 32.4 and employment at 25.6, also at a feverish pitch which raises the question of sustainability for this sample. Delivery times are slowing and input costs are very high with selling prices and especially expectations for future selling prices near record highs. All this strength continues to drive the sample's overall look higher, up a very sharp 6.7 points in March to 47.9.

These results are matched by similar extraordinary strength in the Empire State report which was also released this morning. Yet the strong upward signals being sent by small sample surveys like Philly and Empire State have yet to be matched by the actual factory sector where strength, though tangible, is much less extraordinary and much less at risk of capacity dislocations.

Market Consensus Before Announcement
At a March consensus of 23.0, robust strength is once again the expectation for the Philly Fed manufacturing index. Rising backlogs and expectations of rising selling prices are the latest trends in a sample that would appear to be at risk of hitting capacity constraints.

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.