Release Explanation: The Philly Fed index is a survey of manufacturing activity in the Third Federal Reserve District (eastern Pennsylvania, southern New Jersey, and Delaware). It attempts to index economic activity by polling participants in regards to employment, working hours, new and unfilled orders, shipments inventories, delivery times, prices paid, and prices received. With the Northeast being a major hub of manufacturing activity, a stronger Philly Fed index is suggestive of future economic growth in the area.

 

GDP is directly affected by the manufacturing activity in the country, of which the Philadelphia region is a major component off.  Durable goods and other releases such as Industrial output can be affected by the Philly Fed. The currency may experience a slight movement on the release, but the significance of the data will be filtered down to Durable Goods and GDP, where the impact may be more severe.

 

Trade Desk Thoughts: According the Federal Reserve bank of Philadelphia, conditions in the region's manufacturing sector continued to deteriorate in February. The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, declined from a reading of -24.3 in January to -41.3 this month, its lowest reading since October 1990. The index has been negative for 14 of the past 15 months.

 

However, most of the survey's indicators of future activity improved, continuing to suggest that the region's manufacturing executives expect declines to bottom out over the next six months.

 

The survey's new orders index declined eight points, and the survey's shipments index fell markedly (16 points) to its lowest reading since the survey began in 1968.

 

The current employment index fell for the fifth consecutive month, dropping seven points, to -45.8, its lowest reading in the history of the survey. The percentage of firms reporting a decrease in employment (48%) was greater than the percentage reporting an increase (2%). The average workweek index deteriorated significantly, declining from -30.3 to -44.9. Forty-eight% of the firms reduced work hours this month.

 

For the fourth consecutive month, firms reported declines in the prices paid for inputs and the prices received for their own manufactured goods. Thirty-two% of the firms reported paying lower prices for inputs; 18% reported paying higher prices. The prices paid index increased from a record low reading of -27.0 in January to -13.7 in February. Reflecting weak conditions, 31 percent of the firms reported lower prices for their own manufactured goods; only 4% reported higher prices this month. The prices received index remained negative for the fourth consecutive month and edged two points lower.

 

Expectations for future conditions improved for the second consecutive month, suggesting that the current slump will bottom out in the next six months. The future general activity index increased from 7.4 in January to 15.9 this month, its second positive reading since September 2008. The indexes for future new orders and shipments also improved, increasing 11 points and 16 points, respectively. On balance, firms still expect decreases in employment over the next six months: The future employment index remained negative but increased 12 points from its low reading in January. The index has been negative for five consecutive months. Twenty-seven% of the firms expect employment to decline further over the next six months; only 10% expect employment to increase.

 

Forex Technical Reaction: Stocks fell after the report was released and the dollar gained on the higher-yielding currencies while it declined vs. the yen.