by Mish

Yesterday we heard from the Empire State region. Today the spotlight is on the Philadelphia Fed Business Outlook Survey where new orders plunged.

Econoday notes “cracks” in the survey.

There finally may be cracks appearing in Philly Fed which has, since the election, been signaling break-out strength for the Mid-Atlantic manufacturing sector. The general conditions index looks solid at 19.5, still very strong though down from 27.6 in June and the least robust result since November. But details — which in this report are not reflected in the headline index — are the flattest since late last year.
New orders, at only 2.1, are down more than 20 points in the month for the worst reading since August last year. Unfilled orders show better strength at 7.2 but are still the weakest since December. Employment, at 10.9, is also the softest since December as are selling prices, at 9.0. Shipments, still strong at 12.2, are at the lowest rate of month-to-month growth since September last year with the workweek, still positive at 3.8, the lowest since November.
This report has been a puzzle all along, signaling post-election strength that was not matched at all by the national factory sector where growth has been no better than moderate. Though indications in today’s data still point to growth, they definitely are pointing to slowing which could either signal that this report is falling into line with actual national growth or, possibly, that national growth may be pivoting lower. In any case, this report is based on a small volunteer sample from only one area of the country.

New orders, inventories, and the average workweek are all showing relative weakness. But check out the six-month look ahead component.

Only 4.3% of firms expect more hiring while 39.4% expect more new orders and 25.8% expect to build inventories.


Look Ahead Expectations

Image placeholder title

The look-ahead expectation is always a joke. It’s only real use is as a contrarian indicator. During recessions it turns negative, marking the bottom.

Ahead of this report, Econoday was actually worried about overheating. Given these reports had nothing to do with actual output, the concern was more than a bit silly.

For a discussion of the weaknesses in diffusion indices and the recent Empire State report, please see Empire State Manufacturing: Another Strong Regional Report Bearing Little Resemblance to Reality.

Expect more cracks in the coming months.

Mike “Mish” Shedlock

Non-Manufacturing ISM Cracks Appear: 8 of 18 Industries in Contraction

The non-manufacturing (services) ISM is still growing but prices and new export orders both plunged into contraction. Moreover, 8 out of 18 industries fell into outright contraction.

Same Old Song: Bogus Philly Fed and Regional Manufacturing Reports

The Fed's regional reports have been so wrong for so long I stopped reporting on them. Just for grins let's take a peek.

Empire State Manufacturing: Another Strong Regional Report Bearing Little Resemblance to Reality

I have not commented on the regional manufacturing reports much lately because they bear no resemblance to reality.

Philly Fed, Another Strong Regional Activity Report: Why Doesn’t Factory Data Match?

The Philadelphia Fed Business Outlook Survey of manufacturing activity has been in positive territory for eight months. New orders are up, unfilled orders are up, Employment is up, and work hours are up.

Philadelphia Fed Manufacturing Index Surges Again, Positive for Ten Months

The Philadelphia Fed Regional Manufacturing Index surged again this month but remains below two higher recovery highs.

Philadelphia Fed Manufacturing Survey Shows Employment Index Highest in 48 Years: Reality Check Time

I stopped commenting on the Fed regional manufacturing reports some time ago because they bear little resemblance to reality. Today's Philly Fed report is a real "gem," showing just how screwed up diffusion indexes are, so it's worth a look.

ISM and Markit Manufacturing Reports Skewed by Energy Sector and Airplane Orders?

The divergence between Markit’s US Manufacturing PMI and the ISM’s “Report on Business” narrowed a bit today with both numbers retreating a bit but ISM cooling more.

Philadelphia Fed Survey Strongest Since 1984

The Philadelphia Fed February 2017 Manufacturing Business Outlook Index jumped from 23.6 in January to 43.3 in February. Bloomberg Econoday notes this is the strongest reading since 1984.

Is the Manufacturing Growth Slowdown No Longer Welcome? Already?

On May 15, the Empire State manufacturing report kicked off the start of monthly regional Fed manufacturing reports with a composite reading of -1.0 vs an Econoday consensus expectation of 8.0.