Bring Out QE3: Philly Fed Plummets: Prints At 3.9 On Expectations Of 20

Tyler Durden's picture

The Philly Fed, which was expected to rise from the April number of 18.5 to 20, instead collapsed to 3.9! This compares to the March level of over 43. So much for the "Economic Recovery"TM. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 18.5 in April to 3.9, its lowest reading since last October (see Chart) and the 3rd largest 2 month drop on record. The demand for manufactured goods, as measured by the current new orders index, showed a similar slowing: The index fell 13 points while the shipments index declined 23 points; both remained positive, however, suggesting slight growth last month. For the first time in eight months, firms reported that unfilled orders and delivery times were falling—both indexes were slightly negative this month." And even thought the prices paid dropped from 57.1 to 48.3, this was little solace for survey respondents: "A majority of firms continued to cite input price pressures and a sizable share of firms reported higher prices for their own manufactured goods again this month." Time for Tim Geithner's 2011 NYT OpEd edition, titled appropriately, "Welcome to the Economic Stagflation." And, oh yes, bring on the QE3.

From the report:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 18.5 in April to 3.9, its lowest reading since last October (see Chart). The demand for manufactured goods, as measured by the current new orders index, showed a similar slowing: The index fell 13 points while the shipments index declined 23 points; both remained positive, however, suggesting slight growth last month. For the first time in eight months, firms reported that unfilled orders and delivery times were falling—both indexes were slightly negative this month.

Firms’ responses continue to indicate overall improvement in the labor market despite weaker activity, orders, and shipments. The current employment index increased nearly 10 points and has now remained positive for eight consecutive months. The percentage of firms reporting an increase in employment (32 percent) is higher than the percentage reporting a decline (10 percent). Only slightly more firms reported a longer workweek (17 percent) than reported a shorter one (13 percent) and the workweek index decreased 14 points.

And some "expert" views on this collapse per Reuters:


"It's pretty ugly. The Philly Fed index was a lot weaker than
expected. New orders, shipments, unfilled orders, inventory, delivery
time, all down quite sharply. Employees were up smartly, which is good,
but the average work week was down. So you still had growth over the
month but that growth has slowed pretty sharply, and that's also been
reflected in the six month outlook.

"We are seeing some of the
knock-on effects of what happened in March and April, which was the
residual affect of the Japan earthquake hitting the production numbers,
the big run-up in energy prices, and you're also seeing a bit of a soft
patch given you're getting a rollover in inventory momentum."

"I'm not overly concerned because I think this gives way in the next
couple of months. You've had a pretty smart drop in energy pieces and
that has a pretty big effect on the Empire and Philly Fed survey given
the mix of chemical industries and things of that nature. Also two
sources of demand that will continue to drive manufacturing are exports
and capital spending, which are looking very strong. I think this is a
soft patch, but no more than that. I fully expect this to move the other


"All the numbers that we just saw were extremely, extremely bad. Any
relief or optimism that investors may have had after the jobless claims
report has now been erased. All of these numbers confirm that the U.S.
recovery is moving at a glacial pace and the Federal Reserve really has
no choice but to take a back seat with monetary policy and wait for the
economy to gain momentum. This also shows that even though the Federal
Reserve is talking about exit strategies, they are not ready to
implement them. The latest reports just confirm that the U.S. economy is
not at the right point for (Ben) Bernanke to follow the footsteps of
(ECB head Jean-Claude) Trichet."


The Philly Fed was a weak report across the board. Unlike the Empire report where they underlying looked pretty good, the underlying of the Philly Fed looked pretty soft.

"The housing data was weaker than expected. The housing market is still really going nowhere.

"The second quarter, especially April and perhaps May as well, is going to be marked by parts shortages from Japan. That hit the industrial production data last week and that was all due to autos. Whether (the Philly Fed weakness) is due to that is unknown. You could see a second quarter that was weaker than we were expecting but at the same time the third quarter, which was supposed to be softer than Q2, may come out firmer as those auto plants get back to full speed."


"It was, I think, in a word, pretty ugly. It wasn't just the headline but it was basically the data beneath the surface. New orders, shipments, they both fell pretty sharply. The lone positive was the employment index but if you're looking at the more forward looking index, new orders, they basically got annihilated.

"We're probably past the peak in regard to manufacturing activity, but we don't think manufacturing activity is stopping. We just think it is slowing a bit.

"This in no way suggests to us that we should expect manufacturing activity will cease to be an engine of growth in the recovery, we just think it's going to be less powerful.

"The regional manufacturing reports are sometimes prone to volatility and you looked at what happened earlier in the week with Empire, Empire wasn't as bad as it first looked. You have to take Philly Fed in the context of what are the other regional indexes telling you."

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Racer's picture

And don't forget to BTFD on this horrendous news

Fish Gone Bad's picture

Bad news followed by bad news, followed by bad news.  Eventually the carpet is going to yanked out from under this market.

smlbizman's picture

no housing, no jobs and no is bullish because it can't get any worse...wait this just in.... 

Overflow-admin's picture

But the HFT can't read the news...

the not so mighty maximiza's picture

Summer of recovery reporting for duty

DogSlime's picture

Was their prediction based on an assumption that QE3 would have been announced and cemented by now?


Temporalist's picture

Don't forget the housing sales drop of .08%.

Larry Yun still thinks it's a recovery.

""The recovery is very sluggish," said the group's senior economist, Lawrence Yun"

"Sales slipped 0.8 percent month over month to an annual rate of 5.05 million units from a downwardly revised 5.09 million in March, said the National Association of Realtors."

Caviar Emptor's picture

Stimulate me!

Trickle me down!

Hard1's picture

See Phyllys - Bitchez!!!

Herne the Hunter's picture

Oh well. Who needs manufacturing when you have services...

Aductor's picture

I will link myself into the Matrix and enjoy the ignorance. After all, a 980 P/E-Pisani stock is quite attractive.

Harlequin001's picture

yep, thought I might sell some of my gold and buy some of that...


Vagabond's picture

apmex 2011 eagles: 111584

oogs66's picture

but LNKD is doing so well, so everything must be good.  please focus only on the good bits of data, ignore all bad data, ignore the games we are playing to avert breaching the debt ceiling and just assume governments will bail everyone out

DOT's picture

Bake in that QE boys.

No number this time please, maybe call it "QE Gold" !



Temporalist's picture

Michael McKee, Bloomberg's economist, said the Philly number was because of Japan.  I guess people prefer excuses over facts; economist is just another way to say apologist.

SheepDog-One's picture

But Japan was deemed 'GOOD NEWS" by all eCONomists.

StychoKiller's picture

Economists == Fortune Tellers (and not very good ones at that!)

Caviar Emptor's picture

The demand for mindless occupations is booming! 

Long mindlessness

anti Oligarchy's picture

Should be interesting to see if the market rallies or not on this.

I think the market is realizing that the FED is in a tight corner - more QE is more pain at the pump.  No QE is a market getting hammered.


if you want a conspiracy take on it, then go with adding QE and forgetting about the pain at the pump.  What is the political risk?  Sure, lots of Americans are going to suffer, but who will they vote for?  Funny how Republicans are playing along and not putting any effort into 2012.  Obama will have a free ride despite the suffering. 


They all win again.

FreeNewEnergy's picture

Obama may run unopposed since the Republicans are all bailing out, though maybe Newt can finally win when they "fix" the results from the non-traceable, easily-hacked touch-screens.

Flip the vote! After all, it really doesn't matter who is president since the world is run by Lords Blankenstein and Dimon Jamie.

Bay of Pigs's picture

Yes, it looks like a Mitt Romney/insert the stooge (Palin, Huckabee) ticket that has no chance to dethrone our foreign born King.

Of course, I'm not betting we even have an election in Nov 2012.

jowenchrist's picture

We need a black scapegoat - he fits the bill -

stormsailor's picture

yeah, qe3 is a no brainer.  and when the japanese print up a godzilla amount of yen. dollar goes up and we devalue again to raise equities.  euro problems, same.  this could go on for decades.

ElvisDog's picture

For it to go on for decades, QE would have to maintain its effectiveness at least on some marginal level. I don't think nature really works that way (and I'm calling economics part of nature). Imbalances don't go on forever. The natural state of things is to reach an equilibrium state. I suspect long before we get to "decades" there will be a QE that will have no positive effect whatsoever, and then we'll get a QE that has a negative effect. That is when things will unravel and the world economy will return to a new equilibrium.

Bleeping Fed's picture

You're talking like QE had a positive effect in the first place...

ElvisDog's picture

I didn't say "positive", I said "effective". I think QE1, QE-lite, and QE-2 have been effective in keeping the ponzi going over the past two years.

FreeNewEnergy's picture

Market took a little downward pressure on this, despite the LinkedIn IPO. Should last about 10 minutes before the options expiration pump resumes.

This is all very bullish. Timmah told me so.

Bay of Pigs's picture

I'm sure this was all due to bad weather.

cdude's picture

This is huge! This is monumental! Already playing out in the markets. Caused the S&P to go negative for a whooping 10 minutes. 

Harlequin001's picture

Nah, that was just a flash crash...

ElvisDog's picture

But if you look at a 3-month chart of SPY, the S&P 500 has basically gone nowhere over the past 3 months. It would appear that the current level of QE and POMO has lost its market-levitating powers.

lieutenantjohnchard's picture

guess it's time for zh's resident genius' to post something along the lines that although the philly fed index is plummeting t-shirt sales are booming.

ABCStore's picture

Sick and tired of the word "unexpectedly" in the news.


deflator's picture

There is no place left to turn for real economic growth. We have reached "capacity for growth" in real terms. The only thing we can chase debt with is new debt. The obvious solution from a top down economic model is top down debt distribution. Of course it does nothing for bottom up deflation but exacerbate it with top down inflation.

John Law Lives's picture

Data re. Existing Home Sales, Philly Fed and Leading Indicators was all much worse than expected.  Expected reaction from this FUBAR market:

Stocks should surge on hopes for QE3...

100% Ponzi FUBAR


A_MacLaren's picture

Back when Pittsburgh was a ragin' steel town, I can see why the PhillyFed was relevant.

Not being from that part of the country, but assuming there are still headquarters and something of economic importance to the report, can someone help me out to understand the modern relevance?

A_MacLaren's picture

I was thinking steak sandwiches, but I'll accept cream cheese.

oogs66's picture

Greece 10 year bonds traded at 16% today, another record.  EU bailout, QE3, even more Japanese future growth, what's not to like about the market?

SheepDog-One's picture

Uh oh! While 'all is well, couldnt be better', the FED monster demands more feeding! Shovel in FRN's fast as you can now boyz!

Jovil's picture

The reports mentions that unfilled orders and delivery times were falling. I believe this is the Japan problem with the supply chain disruption. Many manufatured goods globally depend on parts from Japan and not just Japanese automobiles. June and July quarterly earnings reports for the first time will show a full quarter after the disaster in Japan. The following quarter will be even worse. This will have a great impact on the stock markets and this will be the catalist the Bernanke is looking to implement QE3 which will drop the DOW over 1,000 points.

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