The Really Good News Hidden in the Philadelphia Fed Report

By David Berman

The Philadelphia Fed index rose only slightly higher than the consensus expectation among economists on Thursday – but economists sounded uncharacteristically upbeat about this latest reading on U.S. regional manufacturing activity, and investors are driving stocks higher. The headline reading was 17.6%, versus an expectation of 17 and above the 15.2 reading in January.

But economists pointed out that the underlying details that made up the headline number were – in one economist’s words – “spectacular.” In particular, the orders index jumped 20 points, suggesting a big uptick in demand for manufactured goods.

Here are a few responses to the survey:

Goldman Sachs: “In contrast to the Empire survey results reported by the New York Fed for New York State earlier this week, the details of the Philadelphia Fed’s survey supported – in fact, outran – the increase in the headline index.”

Ian Shepherdson, chief U.S. economist, High Frequency Economics: “The modest rise in the headline index is less interesting than the subindexes, where new orders jumped to 22.7 – the highest since September 04 – from 3.2. Orders are volatile but this is a spectacular increase. It does not necessarily signal a further rise in ISM manuf orders, however, because the Philly number has been undershooting relative to the long-run picture; this could be just a catch-up.”

Jennifer Lee, senior economist, BMO Nesbitt Burns: “Although it doesn’t always appear that way, the U.S. economic recovery bravely forges onward…stumbling at times, but it is moving forward.”