The deep 30-point plunge to minus 43.7 seen in Tuesday's Empire State report is not confirmed by the Philadelphia Fed manufacturing index which actually improved a couple of points to minus 10.6 in December from November's revised minus 12.8.

Though not cataclysmic, Philly's report isn't reassuring as new orders, though improving by more than 3 points, are still squarely negative at minus 17.9, while unfilled orders are nearly 10 points deeper in the red at minus 18.5. Substantial contraction in orders points to trouble for Mid-Atlantic manufacturing activity in the months ahead.

Shipments did improve by 5 points but are nevertheless at minus 6.2; employment is little changed at minus 1.8. And another key negative in the report is contraction in the general six-month outlook to minus 4.0, a nearly 17 point reversal and the worst reading since May last year.

Supply snags aren't to blame as delivery times continue to speed up and as input costs come down, the latter dropping 13 points to 11.3 for the lowest reading since April last year. Selling prices are also cooling, to 6.3 for a nearly 6 point decline for the lowest reading since June last year. Though these price readings are favorable signals for Federal Reserve policy makers, weaker selling prices are not a positive signal of underlying demand.

Yesterday's industrial production report for December saw the manufacturing sector end 2023 nearly dead flat. And though various diffusion indexes on manufacturing were signaling contraction throughout last year, today's Philly report together with Empire State are not auspicious indications for 2024.

The Philadelphia Fed manufacturing index is expected to improve slightly to minus 6.7 in January versus December's minus 10.5 in a report that showed deep contraction for new orders and continued contraction for unfilled orders.

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.