In a much needed confirmation that Janet Yellen did not make a policy mistake by hiking rates yesterday, moments ago both the Empire State and Philly Feds smashed expectations, with the first printing at the highest level since September 2014 of 19.8, above the expected 4, and well above May's -1 contraction print, while the Philly Fed posted at 27.6, also beating consensus estimates of 24, if a drop from last month's 38.8.
The New York Fed breakdown:
- Prices paid fell to 20 vs 20.9
- New orders rose to 18.1 vs -4.4
- Number of employees fell to 7.7 vs 11.9
- Work hours rose to 8.5 vs 7.5
- Inventory rose to 7.7 vs -0.7
Meanwhile over in Philadelphia:
- June prices paid fell to 23.6 vs 24.2
- New orders rose to 25.9 vs 25.4
- Employment fell to 16.1 vs 17.3
- Shipments fell to 28.5 vs 39.1
- Delivery time rose to 13.9 vs 6.4
- Inventories rose to 5.8 vs 1.4
- Prices received rose to 20.6 vs 15.3
- Unfilled orders rose to 14.0 vs 9.0
- Average workweek fell to 20.5 vs 21.7
- Six-month outlook fell to 31.3 vs 34.8
- Six-month outlook for capex fell to 28.6 vs 32.6
The sentiment at both regional Feds was quite optimistic. First the NY Fed:
Business activity rebounded strongly in New York State, according to firms responding to the June 2017 Empire State Manufacturing Survey. The headline general business conditions index shot up twenty-one points to 19.8, its highest level in more than two years. The new orders index posted a similar increase, rising twenty-three points to 18.1, and the shipments index advanced to 22.3. The inventories index climbed to 7.7, indicating a rise in inventory levels, and labor market indicators pointed to a modest increase in employment and hours worked. The pace of input price increases was unchanged, while selling price increases picked up somewhat. Looking ahead, firms remained optimistic about the six-month outlook.
The only negative factor was a drop in employment: The index for number of employees edged down four points to 7.7, and the average workweek index was little changed at 8.5.
On the inflation front, the prices paid index held steady at 20.0, and the prices received index rose six points to 10.8, pointing to a pickup in selling price increases.
Looking forward, firms remained optimistic: "Indexes assessing the six-month outlook suggested that firms continued to expect conditions to improve. The index for future business conditions was little changed at 41.7, and the index for future new orders rose nine points to 42.2. Inventories were expected to be slightly lower in the months ahead, and employment was expected to increase modestly. The capital expenditures index rose to 20.8, and the technology spending index was 11.5."
Meanwhile in Philadelphia, while modestly subdued, sentiment was also strong:
The index for current manufacturing activity in the region increased from a reading of 22.0 in April to 38.8 this month. The index has been positive for 10 consecutive months. This month, the index recovered some of the declines of the previous two months, but it still remains slightly below its high reading of 43.3 in February (see Chart 1). Fifty-one percent of the firms indicated increases in activity in May, while 13 percent reported decreases. The current new orders and shipments indexes remained at high readings. The shipments index increased 16 points, while the new orders index declined 2 points. Both the delivery times and unfilled orders indexes were positive for the seventh consecutive month, suggesting longer delivery times and increases in unfilled orders
Unlike New York, Philadelphia saw price pressures moderate: "The survey’s diffusion indexes for prices remained positive but decreased from their readings in April. On the cost side, 31 percent of the firms reported increases in the prices paid for inputs, compared with 36 percent in April, and the prices paid index decreased 10 points to 24.2. With respect to prices received for firms’ own manufactured goods, 21 percent of the firms reported higher prices, and 6 percent reported lower prices. The prices received index decreased 1 point."
And while Philly firms expected continued growth, optimism fell:
Most of the survey’s six-month indicators decreased further from the higher readings seen at the beginning of the year. The diffusion index for future general activity decreased from 45.4 in April to 34.8 this month, its second consecutive decline. Forty-five percent of the manufacturers expect increases in activity over the next six months, while 10 percent expect declines. The indexes for future new orders and shipments also fell, decreasing 9 points and 6 points, respectively. The future employment diffusion index, at 29.2, fell 8 points. Thirty-seven percent of the firms expect to increase employment over the next six months, down from 46 percent last month.
Overall, however, sentiment remained strong with responses suggesting continued growth for the region’s manufacturing sector. All the broad indicators either improved or remained at high positive readings, suggesting continued expansion.
In other words, if Yellen was looking for some validation that the economy is recovering, at least the soft data is happy to provide it. Whether it spills over into inflation prints remains to be seen.