On the surface, the January Philly Fed was a beat, printing at 9.4 on expectations of a 8.7 number and up from a downward revised 6.4. However, the internals were hardly as pretty with the most notable, New Orders, plunging from 12.9 to 5.1, the lowest print since May 2013, and also the biggest three month drop since August 2011. Additionally, while unfilled orders posted a modest increase from -6.6 to -1.0, Inventories were crushed sliding from 16.0 to -19.6, on what one can assume were wholesale liquidations, and judging by the retailers abysmal numbers, at hardly profitable levels. Furthermore, the optimism of the diffusion index respondents seems to be waning as the 6 Months forecast slide from 44.8 to 34.4 after hitting a recent near all time high of just shy of 60. Also bad news for margins, as Prices Paid increased by 2.3 points to 18.7, while Prices Received decline from 10.8 to 5.1 - a delta, in the wrong direction, of 13.6. The only good news in the report was the increase in number of employees from 4.4 to 10.0, however offset by the average employee workweek which dropped from 4.8 to -5.3. So more workers, doing less: so much for wage inflation pressures.
The data charted:
[4]
Just the New Orders data:
[5]
And the full component breakdown:
[6]
From the report's analysis of current conditions:
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a revised reading of 6.4 in December to 9.4 this month (see Chart). The index has now been positive for eight consecutive months. The current shipments and new orders indexes remained positive but moved in opposite directions compared with December. The demand for manufactured goods, as measured by the current new orders index, decreased from a revised reading of 12.9 to 5.1 this month. Shipments continued to expand, and its index edged slightly higher to a reading of 12.1. Labor market indicators showed some improvement this month. The current employment index increased 6 points from its revised reading in December. Twenty?three percent of the firms reported increases in employment in January, which is slightly higher than the 18 percent that reported increased employment last month. Firms reported reduced work hours, with the average workweek index falling from 4.8 to ?5.3. Cost pressures were slightly more widespread this month among reporting firms: The prices paid index increased 2 points, to 18.7. But with respect to firms’ own manufactured goods, price increases were less widespread this month: The prices received index decreased 6 points, to 5.1.
As for the 6 month outlook:
The survey’s future indicators have recently shown moderating optimism about growth in manufacturing. This month, the future general activity index fell 10 points, from a revised reading of 44.8 in December to 34.4 this month (see Chart). Still, nearly 48 percent of the firms expect increases in activity over the next six months; 13 percent of the firms indicated that they expect decreases. The indexes for future new orders and shipments also remained at relatively high levels but fell 7 points and 9 points, respectively. The future employment index was virtually unchanged at 17.5, with nearly 25 percent of the firms expecting to increase employment over the next six months.
And with GM's year end, near-record channel stuffing now long gone, it is all downhill from here.