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 2/21/08 For Feb 2008 | ||||||||||||
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Highlights
Bad news is what the Philadelphia Federal Reserve's regional manufacturing report shows in February, with the business activity index plunging to -24.0. New orders contracted for a second month, -10.9 vs. January's -15.2. Orders of course are the life blood for business and these numbers point squarely to recession -- at least recession for Mid-Atlantic manufacturers.
In line with the decline in orders, shipments and inventories contracted while delivery times quickened. Employment inched ahead in the month, at 2.5, but weak orders and contracting shipments point to declining employment ahead.
The Federal Reserve believes weak business activity will lead to less price pressure, but there's only the slightest indication of that so far as both prices paid (46.6 Feb. vs. 49.8 Jan) and prices received (24.3 vs. 32.0) remain extremely elevated. According to the report: "Despite reporting weakness in activity, firms continued to report a rise in prices for inputs and their own manufactured goods."
Yet another negative in the report was a plunge in the six-month outlook for business activity, to -16.9 vs. January's 5.2. Pessimism is the theme of this report, and pessimism has a self-fulfilling quality that Fed policy makers now must fight against. Treasury yields fell in immediate reaction to the results, which will raise concern of serious contraction emerging in the ISM national report for manufacturing. The results are likely to prove a negative for the stock market and the dollar through today's session.
The general business conditions component of the Philadelphia Fed's business outlook survey index plunged to minus 20.9 in January from December's already soft minus 1.6. New orders also pointed to future weakness in manufacturing, falling to minus 15.2 from plus 12.0 in December. After last week's sharp drop into negative territory for the February Empire State index and a flat manufacturing component in January's industrial production numbers, expectations are slipping for manufacturing.
Philadelphia Fed survey Consensus Forecast for February 08: -12.0
Range: -15.0 to 0.0
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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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