Philly Fed Posts Fifth Consecutive Negative Print, As Hopium Soars By Most Since 1991

Tyler Durden's picture

The Philly Fed's current September Business Indicators index, long ignored when bearish and cheered when bullish, came slightly above expectations of -4.5, printing higher from last week's -7.1 to -1.9. This was the fifth consecutive negative print. And while there were no major highlights in the index, whose New Orders rose from -5.5 to 1.0 at the expense of Shipments and Inventories, both of which imploded to worse then -20, the real story is the Six Months expectations index, which exploded from 12.5 to 41.2: this was the biggest spike may not ever, but certainly in the past 22 years! Is there any wonder why everyone is transfixed with hope that Q4 will be the deus ex that saves the US economy. And so we are back to being a hopium driven economy - when reality sucks, there may not be much change, but there is always hope that finally, the central planners will get it right, and the future will be so bright you've gotta wear Made in China shades. One word of caution: if the so very much anticipated and 100% priced in Q4 recovery does not materialize, and with the fiscal cliff and debt ceiling issues still unresolved, get the hell out of Dodge, as the spread between hope and reality comes crashing.

Current conditions vs hope:

The monthly change in 6 month forward, aka Hope. Biggest since 1991:

In tabular format

From the report:

Firms responding to the September Business Outlook Survey reported nearly flat business activity this month. The survey’s indicators for general activity and new orders both improved from last month but recorded levels near zero. Firms reported continuing declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months, however, improved notably this month, although the same firms forecast continued deceleration in production growth in the fourth quarter.


The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 5 points, to a reading of ?1.9. Although this marks the fifth consecutive negative reading for the index, the index has been edging nearer to zero over the last three months (see Chart 1). Nearly 23 percent of firms reported declines in activity this month, down from 30 percent last month.


The demand for manufactured goods, as measured by the current new orders index, improved 7 points from last month and recorded its first positive reading in five months. Shipments fell notably this month, however: The current shipments index fell 10 points to ? 21.2. Declines in inventories were more widespread this month, and firms reported continued declines in unfilled orders and shorter delivery times.


Labor market conditions at the reporting firms remained weak this month. The current employment index, at ?7.3, was little changed from its reading in July and August. The percentage of firms reporting decreases in employment (22 percent) exceeded the percentage reporting increases (15 percent). Firms also  indicated fewer hours worked: The average workweek index increased 7 points but posted its sixth consecutive negative reading. Price Indexes for Output Remain Steady The prices firms paid for purchased inputs rose modestly this month, while prices for their final manufactured goods remained steady. The prices paid index decreased from 11.2 to 8.0, with 24 percent of the firms reporting input price increases. With respect to their own manufactured goods, firms reported steady prices, on balance. The percentage reporting an increase in product prices was offset by the same percentage reporting a decrease (13 percent).

But the real story is hopium:

Most of the survey’s future indicators improved from their readings in August. The future general activity index increased from 12.5 to 41.2 (see Chart 1). The percentage of firms expecting increases in activity over the next six months (50 percent) exceeded the percentage expecting decreases (9 percent) by a  large margin. The indexes for future new orders and shipments also increased, each rising 31 points. The future employment index also improved, increasing 11 points.


The share of firms expecting to increase employment over the next six months (32 percent) was greater than the share expecting to decrease employment (11 percent). In supplemental questions, firms were asked to estimate their total production growth for the third quarter ending this month and expected growth for the fourth quarter (see Special Questions). Firms forecasting total decreases in third quarter production (47 percent) exceeded those forecast ing increases (35 percent). The average production growth rate for the reporting group was an expected decline of nearly 1 percent.


With regard to the fourth quarter, the percentage of firms expecting a deceleration in the rate of their production growth (45 percent) was greater than the percentage expecting acceleration in growth (32 percent).

Good luck. Because the only real critical data point in today's report came from the special question which answers most if not all:

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Precious's picture

-> Bone the Fed with a pork shank.

-> Bone the Fed with a fire hose.

slaughterer's picture

Bone em with a Howitzer and a NASA missile  

new game's picture

dear ben;

please reveal all you know.

this slow drivel is testing my patience.


taxed out taxpayer.

hannah's picture

what would 'ben know'...? he prints and prints and prints some more. how fucking hard is that...?

Quinvarius's picture

It is unfortunate for those who have a belief that the stock market and the economy are somehow connected in this age of printing madness.  They will never understand why the DOW is about to double.  But they will surely buy the top.

slaughterer's picture

Dow will double as the dollar is halved.  Zero sum.   

HelluvaEngineer's picture

I've got this funny feeling that after OpEx all hell might break loose (on purpose)

samcontrol's picture

It will double all right but after we visit sp1000.

hannah's picture

the dow may double but the 'they' aint there wont be a buy the top this time.

crusty curmudgeon's picture

Is this good news?  Or bad?  I can't keep track.

“To be controlled in our economic pursuits means to be controlled in everything.” Friedrich A. Hayek

CPL's picture

Bullish is how I read it.

hedgeless_horseman's picture



...if the so very much anticipated and 100% priced in Q4 recovery does not materialize, and with the fiscal cliff and debt ceiling issues still unresolved, get the hell out of Dodge, as the spread between hope and reality comes crashing.

Fear not!  Be certain if this does come to pass, then we will learn that Europe is fixed (again), causing the Euro to levitate...the USD to decline...and thus ramping stocks in nominal returns.

Stuart's picture

Some indicators are more important than others inside the report.  Number of employees continues to fall.  Not a good sign for next jobs report. 

adr's picture

Don't worry, you can make up for the lack of jobs with volume!

max2205's picture

QE 3.1 please.

SmoothCoolSmoke's picture

Romney is finished.  After the election....... SP down 400 pts.

the not so mighty maximiza's picture

I had a feeling he was going to blow up on the launch pad.  Instead of the Mccain method of suspending his campign he just released a video telling the truth, brilliant!!!!

Cole Younger's picture

I don't think Romney ever started..The republicans keep sending garbage and the dems keep sending bull shit masters..Bull shit wins every time..

insanelysane's picture

I get the feeling that Romney has come to the conclusion that getting elected to the presidency this time around isn't really winning.

samcontrol's picture

Darn i thought the article was about drug prices on Miami beach!

slaughterer's picture

OT: JEF (-6.5%) :-)

Meremortal's picture

The question remains the same. How do I react to conditions in order to use them to my advantage?

It looks like the best opportunity will be in oil in the short term. 

Winston Churchill's picture

What part of "get out of Dodge now",did you not understand ?

samcontrol's picture

All of it SERIOUSLY but then i,m French and stupid. Can i still invest in CYTX ?? :)
What about reits ? :)

Stoploss's picture

Generally, the word "expecting" means future achievement.  Like, "i have been expecting to be ass raped for four years straight, starting in 07".    Expectation fulfilled..

However, when the business community uses the word "expecting", not one fucking thing happens remotely close to any achievement to the good side.

This indicates we have a grammatical word use error, that must be corrected in the interest of transparency.

Therefore, i submit we use the old tried and tried again addage of HOPE.

So it would read: "The share of firms hoping to increase employment over the next six months, was greater than the share hoping to decrease employment".

Because when you are running out of people to fire, all you have is hope.


hannah's picture

anyone who has ever worked in sales knows th eold routine. sales manager comes round and ask what you think your numbers are going to be. everyone expects to beat target.....then the end of the month comes and no one made numbers...LOL. you never tell your boss that you are not going to beat or you will be canned...

mayhem_korner's picture



I'm sticking with 2014 as the day when gravity finally wins out on this whole popsicle stand...

earleflorida's picture

somehow it just dawned upon me, that this whole farce of a 'federal reserve free fiat marketcap system' feeds off of a  positivefeedback loop... dee doop

... the algo's and robo's are in an osmosis pool of illiquid hopium--- 'the CB's cryptic-lab cultureclub petri dish of a mesphillic-mephistopheles' via Professor Faust

how quaint

adr's picture

The same thing happened last year and manufacturers went on a production spree to fill all that 2012 demand that was going to come in the new year of recovery.

We got the year without a winter and forward demand that gave a false signal. Unsold inventories ended up never being higher and the majority of 2011 produced inventory got sold at firesale prices, or stored in the hope that business would eventually pick up.

Any business that follows the same path as last year will be bankrupt in 2013. That is probably why hope for 2013 is so high, because if business doesn't pick up, the companies will be bankrupt anyway. Might as well hope orders will pick up.

TrustWho's picture

...S&P was at 1450, bounced a little 2 minutes before report and bang with report. The ALGOS are programed!

TrustWho's picture

...BUT, if S&P breaks below 1450, will ALGOs switch?

q99x2's picture

See Hope brings change with an upward bias in the markets. Your president made good on his promises.

There I go denouncing my citizenship again. I meant my president, our president. What's happening. I can't take it any longer. Help.

Ah better now. Next article.

hannah's picture

"as the spread between hope and reality comes crashing."


how can anything 'CRASH' when all i have to do is inflate one number of the index and make it all good again....?

TeresaE's picture

This is my third presidential election while working in industrial fasteners.

The phones have absolutely stopped ringing, and we supply the last to purchase before final assembly items to everyone from food companies to aerospace to military and auto/transportation.

Every election season is the same, though it makes no sense. Things just slow the heck down.

In 2008, they didn't pick back up for a long, long, time.

Let's hope this time really is different.

But tracking inventories, gov spending and the like, I really doubt it.  The big guys were buying large in the earlier part of the year, now they are tapering way, way, off.  It's like they were trying to bank the numbers (because end sales were not reflecting the build) for some reason. 

Companies can no longer afford to ride the slaughter the worker, free federal fiat gravy train.  Now the reality of the bleeding middle is going to smack 'em right between the eyes.

Guess the powers that be are praying to hold it together until November, I'm banking the end of 4Q and 1Q are going to be absolutely brutal to corp profit margins, and our own personal fiat.  Fun, fun.