Philly Fed Confirms Margin Death Knell: Prices Paid Less Prices Received Highest Since 1979

Tyler Durden's picture

The Philly Fed Current Business Outlook Survey came out at a print of 35.9 compared to 19.3 before, and expectations of 21.0. This print is the highest reading since January 2004. Yet the only component metric that matters is, you guessed it, the Prices Paid index, which came at a ridiculous 67.2 from 54.3 previously! The prices paid index, which increased 13 points in February, has now increased 55 points over the past five months. And confirming the crush in margins was the in the prices received index which tacked on a barely notable 3.9 points to 21. The Prices Paid less Prices Received spread is the highest since 1979!  It is time for the sellside clown brigade to start lowering margins with gusto.

From the report:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 19.3 in January to 35.9 this month. This is the highest reading since January 2004 (see Chart). The demand for manufactured goods is showing continued strength: Although the new orders index was virtually unchanged in February, it has increased over the  past six months. The shipments index also improved markedly, increasing 22 points. Firms also reported a rise in unfilled orders and longer delivery times this month.

On margin deterioration:

Price increases for inputs as well as firms’ own manufactured goods were more widespread again this month. Sixty?seven  percent of the firms reported higher prices for inputs, compared with 54 percent in the previous month. The prices paid index, which increased 13 points in February, has now increased 55 points over the past five months. On balance, firms also reported a rise in prices for their own manufactured goods. The prices received index increased 4 points and has steadily  increased over the past four months. Twenty?nine percent of firms reportedhigher prices for their own goods this month, compared to 26 percent in January.

And the margin grim reaper: Prices Paid less Prices Received - highest since 1979.

And once gross margins go, EPS is next to follow.

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hedgeless_horseman's picture

The Bernank killed Ol'Yeller.

Food inflation is global.  In China, many dietary sources of protein such as milk ($20/gal) and eggs ($25/dz) are getting pricey.  This is forcing some Chinese to return to traditional foods that can still be had for little more than a whistle.   Coming soon to the streets of Philadelphia?

markmotive's picture

Of course he points to everything but the Fed as the source of this food inflation:

bob_dabolina's picture

This confirms that stocks will only go up. Here is the chart that proves it:

Racer's picture

Margins? Earnings? Since when did they matter to this Con 'Market'

uhb's picture

Yeah! Americans dont need no stinkin margins!!!

Hephasteus's picture

Government doesn't care. Taxes don't care about margin compression. They only like sales and inflation.

ElvisDog's picture

Yeah, but at some point they will. If stock prices keep going up and margin compression forces earnings lower, the P/E ratio will keep going up. At some point, even CNBC will have to comment that a P/E ratio of 30-40 on the S&P is dangerously high.

alien-IQ's picture

I'm confident that this metric will be used to justify yet another ramping of the market/shanking of the USD since the only thing that really seems to matter is the perpetual defiance of logic and gravity.

Apparently there is no news on the planet sufficiently bad enough to justify even the remotest of down ticks in this fucked up market.

Buy the fucking dip?...WHAT FUCKIN DIP?

alien-IQ's picture

like clockwork...S&P hits yet another 2+ year high.

bad news? who cares?

I think I need to buy a gun's picture

cnbc missed that explanation on it......

Id fight Gandhi's picture

Of course. They have names like lies-man who report this. Little obvious don't ya think?

Bay of Pigs's picture

That's putting it mildly. With news like this particular post we could witness something historic in the next few weeks and months. Sprotts $2150 gold and $50 silver come to mind.

The Axe's picture

sorry stock can only move

CPL's picture

I've never understood why any sane and rational person would use margin to trade with.

Turd Ferguson's picture

Gee, I thought I was a kook for discussing this as a real phenomena. 

Wait a second...I am a kook. Must not have been this.

Cognitive Dissonance's picture

Just because you're a (self described) kook Turd doesn't make you wrong. In my experience kooks usually have a better grasp of reality than the so called "normal" people. :>)

BTW your blog is a twice daily read for me. Thanks for all your hard work and humor.

Turd Ferguson's picture

Thanks, CD. 

Did you notice that your well-crafted poster of Blythe reappeared yesterday. Thanks again for that, too. Its one of my faves.

Cognitive Dissonance's picture

The Blythe (as Mia Wallace) starring in Silver Fiction (aka Pulp Fiction) movie poster brought a smile to my face when I saw it on your blog.

BTW I can't take credit to crafting it, only for posting it here on ZH. I have yet to discover who's fine work it is.

Caviar Emptor's picture

Tyler, glad you're groking to this metric. I've been following and commenting on it. This is the first monthly report since the crisis that shows any significant pickup in prices received. That to me says that surging input and operating costs can no longer be contained in the pipeline and some businesses are beginning to attempt to pass costs along. Of course that may turn out poorly if consumers reduce demand accordingly. It's a test of wether the "new" post crisis consumer has been re-educated into frugality, reacting to higher prices by cutting back and moving downmarket as opposed to the pre-ciris consumer. 

Misean's picture

Ah, 1979...good times.

Caviar Emptor's picture

I keep sayin' (!) The economic picture in the '70s was no where near as clouded and gloomy. It was really the political and geopolitical picture that spooked everybody. So all those who claim that they "fixed" the economy through genius and voodoo are lying. They lit a match just as the sun was coming up and concluded that they were the ones lighting up the world. 

apberusdisvet's picture

In spite of QE infinity, a rational mind would be out of any longs as this type of info is coming fast and furious.  The sheeple don't have any more money left to steal.

Rainman's picture

Time to dust off my Dow 10K hat yet ??

Caviar Emptor's picture

No rush. Things could get even frothier in an inflationary spiral before they crash

buzzsaw99's picture

This is bullish, right?

daybyday's picture

As GS continues thier relentless selling of the sp futures...looks like they have sold at least 50 almost every handle in the pit since late jan.......JBTFH!!!!!!!!!!!!!!!

jobs1234's picture

But hey I just got this at work; everything is a-ok here in Washington DC


Dear Colleagues:


It has been two years since President Obama signed the American Recovery and Reinvestment Act of 2009.  This historic law empowered the Department of Health and Human Services to help boost the nation’s economy, create and save jobs, maintain and expand access to affordable health care, protect those in greatest need, and provide for the early care and education of young children.


As we celebrate the Recovery Act’s second anniversary today, I want to acknowledge your success in mobilizing assistance to people in need   As a result of your dedication and hard work, and with unprecedented transparency and accountability, 86 percent of the Department’s Recovery Act funds have been placed in the hands of states and local communities. The following examples illustrate the tremendous impact of your efforts.



Community health centers served more than 3.2 million new uninsured and underinsured patients, 1 million more than projected.


Research universities and facilities around the country received more than 20,000 grants for cutting-edge research, including $178.5 million to create a comprehensive map of the genomic changes involved in more than 20 types of cancer.


Regional agencies provided more than 21 million meals to more than 1 million seniors in home and community settings.


More than 58,000 children and families benefited from early childhood development services provided by Head Start and Early Head Start programs.


Over 7,800 American Indian and Alaska Native homes gained access to safe drinking water and adequate waste disposal facilities.


Nearly 3,500 students have enrolled in health information technology training programs at community colleges across all 50 states to help health care providers transition to electronic health records to provide higher quality and more efficient patient care.


Forty-four communities, reaching more than 50 million Americans, received over $370 million to create and run evidence-based anti-obesity and tobacco projects.


HHS also met the President’s call for unprecedented transparency and accountability in the implementation of the Recovery Act by working closely with grant and contract recipients to achieve maximum reporting levels – no easy task, considering HHS has more than 20,000 awardees.  HHS also developed comprehensive program integrity strategies to identify and address potential problems with Recovery Act programs, and partnered with the Office of the Inspector General to assess the management practices of ARRA grantees.  As a result, reports of waste, fraud, or abuse have been very low.


I have no doubt that HHS employees will continue to implement the Recovery Act with professionalism and to the American public’s great benefit.


Once again, thank you for your hard work and dedication.  


Kathleen Sebelius

Rainman's picture

....a Goebbels Gold Medal Award for her. I especially enjoy the part about 370 million fiatscos to make fat kids skinny and discourage the mokers from their evil habits.  No mention of the 44 million on SNAPs, though.

SpeakerFTD's picture

This is why I don't understand the "own stocks as an inflation hedge mentality".   Perhaps, if you own stocks that are almost pure asset plays it makes sense, but how can it possible be bullish for the middle man, pinched between higher input costs and a suffering consumer?    Makes no sense to me all, but don't let me dissuade from BTFD.  It has worked and will work, until it suddenly (and likely violently) does not.

Caviar Emptor's picture

As long as there's a Bernanke put and free money at the door equities will rise, even decoupling from reality. If confused, google dot-com bubble.

But yes, pure asset plays like raw material producers will outperform all, short and long run

Mad Max's picture

Buy the fucking dip!  (in net profits)

Mad Max's picture

Look on the bright side - that means that us consumers are getting the best deals ever, right?  Right?

It also means that a VAT would be about 99% useless in the current economic environment.  Maybe that is actually a good thing.

topcallingtroll's picture

Yep. Record corporate profits should show some mean reversion unless they have pricing power or amazing productivity.

dvsteenk's picture

At least the indices will be held up until next options expiry date (tomorrow?), so all reactions to "bad" numbers are being delayed or killed by automated interventions. UK inflation at 4% and a contraction in Q4 has not received much reaction (soothed by King's "it's temporary"), shrinking margins, unemployment stays high (but improving thanks to "creative accounting"), bond spreads peaking again, commodities go parabolic, and yet stocks keep going up... Apart from Harry, and a few other perfect prop traders (e.g. JPM with a 97% upday track record), who would have expected S&P at 1336 today? Perhaps the same who sold puts and bought calls when S&P was at 1250 last month, and then started buying up every stock that actually had an intention to go down?

Caviar Emptor's picture

Sector rotation going on today out of tech into raw materials producers. 

topcallingtroll's picture

And now round 1 between inflation and demand destruction. Keep it.clean guys.