Philly Fed Index continues string of data showing improvement

The Philly Fed Index, which takes a look at manufacturing conditions in the mid-Atlantic region, is showing a noticeable improvement in economic activity, as the survey released by the Philadelphia Federal Reserve jumped from 1.0 in October to 22.5 in November, the best reading in a year.


(Source: Philadelphia Federal Reserve)

New orders moved back into positive territory, rising from –5.0 to 10.4, suggesting further gains in production, while shipments jumped for 1.5 points to 16.8.

The acceleration in activity also had favorable impact on hiring, which increased from 2.4 to 13.3.

However, rising demand around the globe, especially in China and other emerging markets, coupled with the re-introduction of quantitative easing by the Fed, is keeping upward pressure on raw material prices.

Prices paid rose 2.5 points to 34.0.  But the still-sluggish U.S. recovery is making it difficult to pass along higher commodity prices, as evidenced by a –2.1 reading on the prices received component.

Looking at the chart above, the summer soft patch has faded.  Just as important, the improvement in the Philly Fed signals that the weakness we saw in the more volatile and narrow Empire Manufacturing Index was very likely an aberration.

Expect the economy to gradually improve heading into the end of the year.