Philadelphia Fed Outlook Unexpectedly Heads Back Into the Red

The Federal Reserve Bank of Philadelphia has released its Philadelphia Fed Business Outlook Survey, a live reading for the month of April. It was expected to remain positive after a stronger March, but April’s General Business Conditions Index fell to −1.6. This represents economic contraction.

March’s reading was 12.4 after better than expected gains. Bloomberg’s consensus estimate was calling for the General Conditions Index to drop to 9.0 in April. Bloomberg also showed an Econoday range of estimates being 5.0 to 15.0 for April.

The Philly Fed reading is going to be a disappointing number for the Federal Reserve and its desire to hike interest rates. March’s gains had been after a streak of six consecutive negative readings.

New orders came in at zero, indicating that there was effectively no change from March. A negative reading was also seen in the backlog of orders, down to −6.3 in April from March’s −1.9 reading. Shipments fell to −10.8 in April after having risen sharply to +22.1 in March.
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Despite stronger federal data, the employment reading fell steeply in April. Inventories also continued to contract, a sign that businesses remain cautious on overstock for a mixed outlook ahead.

One bright spot, at least for the Fed and its desire to hike interest rates, was that the Prices Paid index did rise based on a higher oil price.

The indicators for both employment and work hours also fell notably. Despite weakness in current conditions, the survey’s indicators of future activity showed continued improvement, suggesting that the fallback is considered temporary. Index readings and data were shown as follows:

• The current new orders and shipments indexes also fell this month, with 23% of firms reporting a rise in new orders (exactly offset by the percentage reporting a decline).
• The current new orders index decreased from 15.7 to zero this month, while the current shipments index fell precipitously, from 22.1 to −10.8.
• The unfilled orders and delivery time indexes suggested weakness, as both indexes were in negative territory this month. Firms continued to report overall declines in inventories.
• The employment index decreased 17 points and registered its fourth consecutive negative reading.
• Nearly 62% of the firms reported no change in employment this month, but the percentage reporting decreases rose from 17% in March to 27% this month.
• The index of average work hours decreased 22 points and returned to negative territory after last month’s first positive reading in three months.
• The prices received index increased four points, to 7.4, its second consecutive positive reading.
• The largest share of firms (some 75%) reported no change in prices.
• Input price increases were reported by 15% of the firms this month.
• The prices paid index, which had remained negative for seven consecutive months, increased 14 points, to 13.2.

It is important to realize that this is just one regional report. It is also important to know that these monthly data can have rather wide swings due to sample sizes being so low. This report also may conflict with last week’s stronger Empire State Manufacturing report compiled by the New York Fed. Still, this may dampen the tone for the April manufacturing sector’s PMI flash reading due on Friday morning.