US: Philadelphia Fed Business Outlook Survey

Thu Jun 21 07:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Business Conditions Index - Level 28.0 20.0 to 33.1 19.9 34.4

Momentum is thankfully easing in the Philly Fed's manufacturing sample which had been reporting among the very strongest growth, and perhaps unsustainably strong, in 50 years of data. At 19.9, the general business conditions index is very healthy but is down 14.5 points in June.

New orders are very strong but at 17.9 are down nearly 23 points from May. Backlogs edged lower for the first time since January as the sample keeps shipments cranked up at a very active 28.7. The sample continues to find hands to do the work with employment up slightly to 30.4 and 3 tenths shy of the all time record set in October last year.

It's hard to assess what the results say for the factory sector as a whole, perhaps that it may be slowing this month but the rise for shipments will mask much of the effect. The nation's factory sector is having a very good year and looks, tariff risks aside, to be a leading contributor to the 2018 economy.

Market Consensus Before Announcement
Very slight cooling is the consensus for June's Philly Fed report which in May posted a 45-year high for new orders. This report has been coming in at or above Econoday's high estimates in results that hint at overheating strength for this sample. The consensus for June is 28.0 vs May's 34.4.

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.