Highlights
Frightening declines sweep the Philadelphia Fed's manufacturing report for October, pointing to greater trouble beyond September's hurricanes. The report's headline business activity index plunged to -37.5 vs. 3.8 in September for the sharpest one-month drop ever in 40 years of data. October's report is filled with astounding drops: new orders -30.5 Oct. vs. 5.6 Sep., unfilled orders -27.5 vs. -10.2, shipments -18.8 vs. 2.6, inventories -22.3 vs. -22.9, delivery times -20.2 vs. -5.1, workweek -18.4 vs. -7.4, employment -18.0 vs. -0.9.

An immediate easing in pricing power confirms the plunge in activity. Prices paid fell back to 7.2 vs. 31.5 while prices received fell to 5.3 vs. 15.5. With demand falling off a cliff, concern over inflation could soon turn to concern over deflation.

The current trouble has shot holes in future expectations which had been an area of optimism, but not any more. The index for business conditions six months out fell to -4.2 from September's 30.8 with expectations for shipments dropping to -12.3 from 43.1.

Sample size for this report is thin, often no more than 100 firms and is perhaps one reason for the month's giant swings. But in combination with this morning's record plunge in industrial production and the earlier plunge in the ISM manufacturing index, data both for September, evidence indicates that the manufacturing sector is now suffering a sudden and deep contraction. In a special question that may unfortunately point to the key reason behind the plunge, the report said 14 percent of firms reported having difficulty obtaining credit over the past month with 30 percent reporting such problems with their customers.

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