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. Why Investors Care
| Released on 1/17/08 For Jan 2008 | ||||||||||||
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Highlights
Contraction in the manufacturing sector appears to be accelerating, at least in the Mid-Atlantic region where the Philadelphia Federal Reserve's business activity index literally plunged to -20.9 in January vs. December's already soft -1.6. New orders, at -15.2, point to contracting activity ahead. Inventories, at -11.7, and delivery times, at -3.1, clearly show contracting conditions in the supply chain. Employment came in at -1.5 but may contract further should order levels continue to recede.
One area that is not contracting, unfortunately, is prices with input prices soaring to 49.8 vs. December's 36.5. Output prices also soared, to 32.0 vs. 15.2. These readings are way above the zero breakeven level indicating that the bulk of the region's manufacturers are reporting month-to-month price increases.
Flat if not contracting economic conditions along with rising inflation is the worst possible mix. These results confirm weakness seen in Monday's Empire State manufacturing report and together will dim expectations for the month's ISM manufacturing report which already showed contraction in December. Reaction to the report is hard to gauge as it was released alongside headlines from Federal Reserve Chairman Ben Bernanke who doubtlessly will address the outlook for the manufacturing sector.
The general business conditions component of the Philadelphia Fed's business outlook survey index fell to minus 5.7, its lowest reading in five years and compared to plus 8.2 in November. Despite the negative number for general business conditions, some indexes in the December report suggest that there could be a mild rebound in January. New orders improved in December, rising to 10.7 from November's 3.5. Inventories fell to minus 6.7 from plus 2.5 in November, but the dip in inventories could point to a need to nudge production up in the mid-Atlantic region. Any rebound would be welcome relief with more investors starting to worry about manufacturing being in recession.
Philadelphia Fed survey Consensus Forecast for January 08: -1.3
Range: -7.0 to +5.3
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The Philadelphia Fed's business outlook survey is a good leading indicator for the index of industrial production. It is reported in the third week of the month and thus has a lead time of nearly three weeks. |
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