Inquiring minds digging into the latest Philly Fed Manufacturing Report will quickly discover the rise from last month is really a mirage.

click on chart for sharper image

Index and Details

The previous overall diffusion index rose from -1.9 to +5.7.

However …

  • New orders fell into from +1 to -.6
  • The number of employees sunk further into contraction
  • The average work week fell further into contraction
  • Prices paid rose substantially vs. prices received. This shows inability to pass on costs, thus reflects a squeeze on profit margins
  • Inventories are up, but shipments are still in contraction following an enormous plunge in shipments last month

6-Month Expectations

I recently said expectations looking six month out were wildly optimistic and they were (and still are).

  • Note the plunge in expectations from 41.2 to 21.6.
  • New Order expectations fell from 49.4 to 21.1
  • Shipment expectations fell from 42.9 to 20.6
  • Number of employees fell from 21.4 to 8.0

Doug Short at Advisor Perspectives has an interesting series of Philly Fed Charts. For example, here is a graph of current vs future expectations.

click on chart for sharper image

Doug writes “The average absolute monthly change across this data series is 7.9, which suggests that the 7.6 point change from last month is not highly significant …. The latest Future reading has shown a substantial decline of 19.6 points following last month’s 28.7 point surge.

This was a very weak report but billed as “stronger than expected”.

Mike “Mish” Shedlock