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What is the Philly/Fed Index and why is it important? The Philly/Fed Index measures manufacturing activity in the Philadelphia area. While it measures only one area of the country, over the years it has been a leading index for manufacturing overall.
Why bother measuring the manufacturing sector? The main reason is that manufacturing accounts for 12% of our GDP. Growth in manufacturing indicates that orders are picking up. If orders are picking up, the next step is to hire more workers. Hiring more workers speeds the growth of our economy and at the same time puts unemployed persons back to work.
The first stage in recovery is to work off present inventories. We've had a record reduction of stockpiles during the first half of this year. The measure of inventories improved to a minus 17.3 from a minus 31.9 A negative number indicates that stockpiles are shrinking.
Now to the Philly/Fed Manufacturing Index. It rose to 16.7 from a reading 11.5 in October. Analysts were expecting a reading of 12. The new orders index rose to 14.8 from 6.2 the prior month.
The Philly/Fed's gauge of prices paid fell to 14.9 from 21.3 the prior month. Prices received index improved to a minus 1.5 from a minus 4.3
Much of the increased manufacturing activity came from exports. The Commerce Department reported that exports rose for the past five consecutive months.
Overall, our economy is improving albeit slowly. Our economic engine is still in first gear but is slowly shifting faster. If global demand strengthens, look for the US economy to bounce back faster. Look for another rise of 3% in GDP for this quarter.
Do you believe that the economy will speed up next year?
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