The general business conditions index in the Philadelphia Fed's survey of manufacturing is up to minus 10.4 in May after minus 31.3 in April. Conditions remain in contractionary territory for the ninth straight month, although the May report suggests that the near-term low in April is the bottom of the cycle. The April reading is above the consensus of minus 20.0 in the Econoday survey. However, the index for future business conditions is down to minus 10.3 after minus 1.5 in April and minus 8.0 in March. Regional factory sector businesses are showing some concern that softer conditions will not improve in the short term.

The general business conditions index is a diffusion index and therefore not constructed from components. It can tell a different story than the details of the report. In May the details point to the improvement in new orders and order backlogs as the reason for the turn upward.

The index for new orders is up to minus 8.9 in May from minus 22.7 in April while the unfilled orders index is positive at 0.8 in May after minus 11.1 in April. Shipments were also firmer, if still negative, at minus 4.7 in May from minus 7.3 in April. The delivery times index picked up the pace to minus 9.3 in May after minus 25.0 in the prior month. Inventories turn upward to 6.4 in May from minus 17.9 in April. It is not clear if this is restocking after goods began to move more quickly along the pipeline or if businesses may be seeing an inventory buildup at a slow period.

The index for prices paid is up to 10.9 in May from 8.2 in April but remains consistent with only mild price increases for inputs. The index for prices received is slower at minus 7.0 in May from minus 3.3 in the prior month and points to less ability to pass increased costs on to customers.

The Philadelphia Fed manufacturing index has been in contraction the last nine reports and very deeply so in April at minus 31.3. May's contraction is seen at minus 20.0.

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.