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

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: