Philadelphia Fed Manufacturing Index Misses Big
The survey for Philadelphia-area manufacturers reported a negative reading in July. The headline reading for the Philadelphia Fed Manufacturing Index came in at -12.9, which was worse than economists' estimates of -8.0. This is essentially bearish for the manufacturing sector and negative for general economic growth in the United States.
The Philadelphia Fed Manufacturing Index is a monthly survey of Philadelphia-area manufacturers. Firms report on how business conditions have changed for a number of indicators, including production, new orders, employment, prices and company outlook.
In the report, the survey's indicators for general activity, new orders, and shipments improved from June, they remained negative this month, suggesting overall declines in business. Firms also reported declines in employment this month and shorter work hours.
The manufacturers reported near‐steady input and output prices this month. The survey's indicators of activity over the next six months remained positive but moderated somewhat from June.
The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‐16.6 in June to ‐12.9. This marks the third consecutive negative reading forthe index. Nearly 32 percent of the firms reported declines in activity this month, exceeding the 19 percent thatreported increases. Indexes for new orders and shipments remained negative but increased 12 and 8 points, respectively.
The July Business Outlook Survey suggests that firms in the region's manufacturing sector are continuing to experience declines in overall activity. More firms reported declines in new orders, shipments, and employment than reported increases. Prices, on balance, were near steady this month. The outlook among reporting firms, while not as optimistic as last month, suggests that firms believe that activity willrebound overthe next six months.
Traders who believe that the Philadelphia Fed Index is a leading indicator for the US economy might want to consider the following trades:
- Short general industrial companies (NYSE: XLI) such as Illinois Tool Works (NYSE: ITW) or Caterpillar (NYSE: CAT). These companies may be hit by weakening industrial production.
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