The Philadelphia Fed's manufacturing index is up nearly 16 points this month to 5.2 for the first positive showing since August last year. Yet details mostly contrast with the headline: new orders did improve but are still in contraction at minus 5.2; likewise for unfilled orders at minus 11.7. Shipments are up this month to 10.7 from December's minus 6.2 but this gain isn't likely to be sustained given the order slippage which is also reflected in employment at minus 10.3. Prices paid are a further negative, rising more than 5 points to 16.6 though selling prices are steady at a modest 6.2. The general 6-month outlook rose 11.2 points and is back in the positive column at 7.2.

This report can swing sharply month-to-month as can the Empire State manufacturing index which was also released this morning and came in at minus 2.4. Together the two reports point to flat conditions for manufacturing. Watch for definitive data later this morning with the manufacturing component of the January industrial production report where Econoday's consensus is pointing to a small decline.

The Philadelphia Fed manufacturing index in February is expected to improve marginally to minus 9.0 versus January's minus 10.6 which was only slightly weaker than expected but showed substantial contraction in both new and 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.