Why today's Philly Fed report is not as strong as it seems
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.
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.
Latest Market Insights
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)