Macro 4 minutes to read

Why today's Philly Fed report is not as strong as it seems

Christopher Dembik

Head of Macro Analysis

Summary:  Today's figures from the Philadelphia Federal Reserve appear bullish at first glance, but a closer examination reveals some mixed signals amidst a decidedly end-of-cycle overall tone.


We received the last update of the Philadelphia Federal Reserve’s survey for the month of January today. It covers eastern Pennsylvania, southern New Jersey and Delaware. It is a closely watched economic indicator since it tends to give the direction of the broader Chicago Fed’s National Activity Index and the ISM manufacturing reading.  

At first glance, the last print is rather positive since the diffusion index of current activity is up at 17 (versus 11 expected and prior 9.4) but we need to keep in mind that the monthly release is usually quite noisy. We put more weight on its three-month average that seems to confirm the long-term downward trend. It is still getting down at 12.7, which is the lowest level since the end of 2016. 

Interestingly, as you can see in the chart below, the six-month outlook is rather positive since it came in at 31.2, an increase from the previous month’s 27.9. It is clearly too early to say but there might be something to look out for if it continues to increase again next month (which is, in my view, unlikely due to the impact of the shutdown and the ongoing US economic slowdown). 

On the employment side, over 22% of the responding firms reported increases in employment in January while 13% of the firms reported decreases in employment. On the cost side, the prices paid index decreased six points to 32.6, confirming it keeps trending lower. This is the worse print in the past 13 months.

Overall, the last Philly Fed report is rather mixed. It sends both positive and negative signals which is typical of an economy going into the end of the business cycle.
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