Philly Fed typically upstages Empire

Today's sell-off on Wall Street was blamed by many on a modest and unexpected dip in the Empire Manufacturing Index. See Empire provides first look... below. I honestly cannot recall a time when the index has ever had this kind of impact on stocks.

Typically, the Street barely notices this first look at manufacturing for the current month because of its volatility and narrow scope. And the expectations portion of the index did improve.

I'll be more interested in the Philly Fed's Business Activity Index out on Thursday. If we get an unexpected dip in the survey of the mid-Atlantic region, it would suggest manufacturing has hit a bump in the road on the way to a recovery.

But it's important to remember that a bottoming in economic activity may not be a smooth process, and hiccups along the way are to be expected. It may also be signaling that a very gradual recovery, i.e., more of a U- or W-shaped recovery rather than a V, is going to develop. See L, W, U, V – the alphabet soup of economic recoveries.

That shouldn't come as a surprise given the ongoing problems in housing and banking.