The negative headline, below Econoday's low-end estimate, isn't even half of story for the December Philly Fed report which is pointing to another rough month for the nation's factory sector. The headline index came in at minus 5.9 for its third negative reading in four months. New orders have been in the negative column for the last three months, at a steep minus 9.5 in today's report. Unfilled orders, which popped up slightly in November, are back in the minus column and deeply in the minus column at 17.7.Philly Fed vs. Industrial Production
Manufacturers in the Philly Fed's sample worked down their backlogs to keep up shipments which came in on the plus side at 3.7. But without new orders coming in, shipments are bound to fall. Employment, likewise, is bound to fall though it did hold in the plus column for a second month in a row at 4.1 in December. Ominously, price data are beginning to turn deeply negative, at minus 9.8 for inputs and minus 8.7 for final goods -- the latter an indication of weakening demand.
Another ominous detail in the report is a breakdown in the 6-month outlook, down more than 20 points to 23.0 which is low for this reading. Expectations for future orders are especially weak. Today's report falls in line with Tuesday's Empire State report and are both reminders that weak global demand, together with the breakdown in the energy and commodity sectors, are pulling down the nation's factory sector.
The Philly Fed manufacturing region is back in contraction following a very brief stint in positive territory last month to 1.9.
Let's recap what Bloomberg said last month vs. what I said in Philly Fed Slightly Positive After Two Months of Contraction, but New Orders and Shipments Negative, Workweek Collapsed.
November 19 BloombergNovember 19 Mish
...The average workweek is down very sharply in the Mid-Atlantic factory sector, at minus 16.2 which doesn't point to strength ahead for employment.
But employment is one of the positives in the November report, at plus 2.6 and up from minus 1.7 in October. Still, this is a small gain. But one indication pointing to employment strength ahead is the first upturn in backlogs since June, at plus 2.4. Also pointing to employment strength is a strong 6.7 point gain for the six-month outlook to 43.4 where the future employment component is very strong, up more than 14 points to 28.2.
There's good news and bad news in this report but compared to the report's own trend, the news is mostly good and underscores Tuesday's strong bounce in the manufacturing component of the industrial production report. Not strong at all, however, have been some other regional Fed reports with Kansas City to give its November update tomorrow.
In what likely amounts to a bit of economic noise, the Philadelphia Fed regional manufacturing report posted a rise of 1.9, slightly beating the economic consensus of 0.This month, the average employee workweek index soared from -16.2 to +5.5 and is likely an outlier. New orders at -9.5 and unfilled orders at -17.7 does not bode well for either employment or the workweek if weakness continues.
The positive number in unfilled orders likely reflects the huge decline in the average workweek.
The positive general activity [overall index] is not consistent with a hugely declining workweek, contracting shipments, or contracting new orders.
Most likely, the positive general activity number is random noise or a meaningless improvement. The best one can say is "things are getting worse at a decreasing pace, except of course for the workweek collapse."
Three years ago if anyone suggested the Fed would be hiking with industrial production down eight times in ten months, and nearly every manufacturing report for months in or close to contraction, they would have been relegated to the looney-bin. Yet, here we are.
Mike "Mish" Shedlock
