Philly Fed index jumps past forecasts in January
By Alexander Bueso
Date: Thursday 16 Jan 2020
(Sharecast News) - A key lead indicator for the US manufacturing sector got off to a flying start in 2019, although the details of the survey were perhaps not quite as strong as they appeared to be at first glance.
The Federal Reserve Bank of Philadelphia's factory sector index jumped from a reading of 2.4 for November to 17.0 in December.
Economists had forecast a reading of 3.4 for the gauge which tracks manufacturing activity in America's mid-Atlantic region.
A key sub-iundex for new orders bounded ahead, rising from 11.1 to 18.2, alongside an improvement in another tied to staffing levels from16.8 to 19.3.
Price pressures were also on the up, with a gauge of firms' costs increasing from 15.9 to 22.1.
The length of the average workweek on the other hand shrank, with that sub-index retreating from 8.5 to 5.2.
Subindices linked to delivery times and inventories also saw declines, emphasised Ian Shepherdson at Pantheon Macroeconomics.
The link between the so-called Philly Fed index and the national level factory Purchasing Managers Index compiled by the Institute for Supply Management broke down in spring 2019, when US-China treade talks broke down, sending tariffs on capital and intermediate goods from 10.0% to 25.0%, Shepherdson explained.
And the Philadelphia region was in any case much less exposed to China than the sample used by the ISM.
Nonetheless, Shpeherdson went on to add that the gap between the two surveys would narrow over the front half of 2020 if Beijing stood by its commitment to boost purchases of US manufactured goods by $33.0bn from their pre-trade war level in 2017.
For his part, Jonathan Millar at Barclays Research put down the improvement seen in the headline sentiment index to the 'feel-good' factor from the phase-one US-China trade deal.
"The reading is a good sign that the drag on manufacturing from trade-related uncertainty is beginning to abate in line with our assumptions, it may be less informative than usual about conditions in the US more broadly, given the drag from the Boeing 737 Max production stoppage," Millar added.
"Hence, we are not inclined to take much signal regarding the upcoming January reading for the manufacturing ISM, or about overall manufacturing production in the first few months of this year."
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