Like its cousin, the NY Fed Empire report, Philly Fed tops expectations at 12.6 in December, up from revised minus 8.8 in December, to start the year off with a shift to growth from contraction overall. The consensus looked for another gloomy minus 3.5 in January.

Check out new orders at 14.4 in January, up from 5.7 in December, and shipments at 9.5 versus 3.2. These are decent numbers suggesting moderate improvement in business conditions. Employment expands too at 9.7 in January versus 13.0 in December.

The consensus looks for a slightly contractionary minus 3.5.

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.