Philadelphia Outlook Survey Mired in Negative Territory Despite Beating Expectations
By Rom Badilla, CFA
September 20, 2012
The Philadelphia Federal Reserve released its manufacturing survey for September, which suggests declining activity for the region. The Philadelphia Federal Reserve Outlook survey or simply “Philly Fed” for August came in at a reading of -1.9 after a -7.1 print in the previous month. This marks the fifth consecutive sub-zero reading which suggests contractionary activity for the manufacturing sector. The September number was better than market expectations as the median survey of economists’ forecasts was at -4.5.
Despite the downbeat in the headline, the components offer some encouraging signs. Specifically, New Orders which is a gauge of future demand is above water for the first time since April with September’s reading coming in at +1.0, following a -5.5 reading in the prior month. In addition, the Number of Employees improved slightly from -8.6 in August to -7.3. Other sub-indices were less positive.
Inventories fell from -6.9 in August to -21.7 while Shipments collapsed almost 10 points and deeper into contractionary territory to -21.2.
The Philadelphia Fed numbers carry significant weight since the index is heavily correlated to the ISM manufacturing index and the index of industrial production, which both measure the health of U.S. economic activity. Furthermore, the market focuses on both the Empire State and Philly Fed due to its timeliness to act as a gauge for the national survey.
Having said this and given today’s data, the September ISM Manufacturing Index which is released in early October should remain soft and come in at or below 50, suggesting below trend growth for the U.S. economy. A print in the low 40’s suggests recession while a print in the high 50’s coincides with robust growth. Baring a major move in the national number, U.S. Treasury rates will remain in its current trading range for the time being.
According to Trade Monster’s Bond Trading Center, the yield on the current on the run U.S. Treasury is at 1.77% which is little changed on the day.
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