US: Philadelphia Fed Manufacturing Index

Highlights

In a surprisingly robust reading, the US Philadelphia Fed manufacturing general business conditions index beat expectations as it showed faster expansion at 26.7 in April, up from 18.1 in March. Forecasters were looking for slower growth at 12.0 in April with forecasts ranging from 7.0 to 20.3.

Contributing to the pickup in business activity: the key forward-looking subindex, new orders, jumped to 33.0 in April from 8.6 in March. Shipments improved to 34.0 in April from 22.2 in March. Employment, everyone's focus, was the fly in the ointment, showing contraction at -5.1 versus 0.8 in March. It's curious that employee numbers would decline given strength elsewhere and it will be interesting to see if this persists.

On the pricing front, prices paid zoomed up to 59.3 from 44.7 in March and prices received were at 33.5 versus 21.2. These readings suggest inflation heating up as business activity in strong. Presumably the price pressures reflect the energy shock flowing from the US-Iran war so the duration of the war and its effects will determine whether these price pressures persist.

The six-month outlook for general business conditions remained at an upbeat 40.8 in April from 40.0 in March.

Market Consensus Before Announcement

Index seen down in April but still solidly in expansion at 12.0 versus 18.1 in March.

Definition

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.

Description

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.

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