Philadelphia Fed manufacturing index drops in December amid high inflation
Numbers: The Philadelphia Federal Reserve said Thursday that the regional trade activity indicator fell to 15.4 in December from 39.0 the month before. Any reading above zero indicates improving conditions.
Economists were expecting a reading of 30.0, according to a Wall Street Journal poll.
Key details: The overall index is based on a single stand-alone question on economic conditions, unlike the national ISM manufacturing index which is a composite based on components.
The new orders gauge fell 33.7 points to 13.7, while the deliveries index fell 16.8 points to 15.3 in December.
Unfilled orders fell 16 points in December to 11.4 from the previous month.
The six-month trade outlook reading fell 9.5 points to 19 from the November reading of 28.5.
The index of the number of employees edged up to 33.9 from 27.2 last month, the regional bank said.
The Price Paid Index fell to 66.1 from the November reading of 80, while the Price Received Index fell to 50.4 from the November reading of 62.9.
Big picture: The manufacturing sector remains strong despite the headwind of rising input costs. Wholesale product prices are probably rising at their fastest pace in 40 years, although companies have so far been able to pass these higher costs on to consumers, while the Philly Fed Index suggests these pressures may ease somewhat.
The data follows a strong month for manufacturing activity in New York State, according to a regional Fed survey released Wednesday, and points to a good reading of the closely watched National Factory Index released by the Institute for Supply Management on the first working day of the month.
What economists say: “A sharp correction by the Philly Fed has always looked likely after the unexpected jump in October, but it is an even bigger drop than expected,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to customers.
“That said, the index has been wavering in recent months, and the strength of the Empire State survey, released earlier this week, suggests that it would be unwise to assume that this decline marks the start of a softer trend.” , he added. “The unambiguous good news in the report is the marked decrease in all three measures of supply chain pressures – order books, supplier lead times and prices paid.”
Market reactions: US stocks SPX,
were scheduled to open higher on Thursday after a rally late Wednesday following the Federal Reserve’s decision to keep interest rates close to zero.