Philly Fed Manufacturing Index Preview

October 17, 2019

By Orbex

The Philadelphia Fed manufacturing index report is due for release later today. Economists forecast that manufacturing activity as measured by the index will fall to 7.3 for October.

This comes after the index stood at 12.0 in September. The Philly Fed manufacturing index has rebounded sharply after slipping to 0.3 in June. This was the second-lowest reading on the index. It had previously slipped to zero in February this year.

The Philly Fed manufacturing index is a regional index from the Philadelphia Federal Reserve Bank. It covers businesses in the regions of eastern and central Pennsylvania, the nine southern counties of New Jersey, and Delaware.

Therefore, the report is rather limited in scope. It doesn’t have much impact.


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Philly Fed Manufacturing Index, September 2019

However, the results of the Philly Fed Business Outlook Survey (as it is also known as) feeds into the Chicago Fed national activity index. The regional surveys on businesses give an idea into the national manufacturing activity gauge.

Investors don’t pay much attention to the report on a monthly basis. The exception being when the index makes a surprise move, such as in February and June this year.

Last month’s report showed that businesses were fairly stable. The index slipped from 16.8 to 12.0. After a strong rebound in July, manufacturing activity in the region has been somewhat weaker.

Most of the manufacturing sector in the US has been slow. This is a trend also seen on a global level. The slowdown in manufacturing comes because of the late-cycle economic growth.

Furthermore, the trade tensions between the US and China and Europe have also made things a bit more complicated.

Philly Fed Index Suggests Continued Growth

In the report for September, the Philly Fed index showed that the various underlying sub-components were on track. This indicated that although the pace of growth was slower, it still remained in the uptrend.

  • General activity and new orders fell during the month
  • Indexes for shipments rose alongside employment as well
  • Price indexes also showed a strong increase in September
  • Future general activity index was moderate but was pointing to growth

Firms participating in the survey noted that there were strong price pressures. The prices had risen by as much as 38% in September. This was up from August’s price increase of 25%.

But this was in contrast to the US producer prices index report released a few weeks ago. The data showed that prices at factory gate fell 0.3% on the month. The contrasting figures come due to regional factors.

One of the main factors currently impacting businesses in the United States is the ongoing trade talks with China. During the period of September–October, there were some positive developments, however.

Analysts were somewhat optimistic that the US and China could sort out their differences. It should be noted that in early September, the US slapped new tariffs on China on goods worth over 100 billion.

However, the recent news reports about some progress on the trade talks and that the deal would come in phases was encouraging.

But it is still too early to tell at this point. There is no official confirmation just as yet.

For the report today, there is a chance that the index could stabilize, coming in above expectations. But as mentioned, the impact will be limited.

By Orbex