Headline Philly Fed Misses Expectations

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Manufacturing in the Philadelphia region unexpectedly weakened in the month of July as the Philly Fed report turned negative and missed expectations. While economists were forecasting a headline reading in the General Business Conditions Index of 4.5, the actual reading came in at -2.9, which was the lowest headline reading since January. Looking at the internals of the report, though, the picture was much less negative. As shown in the table to the right, the majority of components in the report were positive and showed improvement relative to June. New Orders, for example, saw a big jump, rising from -3.0 up to 11.8. The only three components that were negative this month were Inventories, Number of Employees, and Average Workweek, but even with the negative readings, all three showed improvement.

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One interesting aspect of this month's report was a special question that the Philadelphia Fed asked respondents about seasonal factors and how they impact their business. There have been numerous times in the past few years where we have seen economic reports that either beat or wildly miss consensus expectations, and the culprit often cited is that seasonal adjustments skewed the results. This month's special question suggests that seasonal factors may be less impactful to businesses than they have been in the past and would confirm that seasonal adjustments based on historical patterns may no longer be as applicable. As shown in the chart at right, when asked, "Have seasonal factors become more or less important for your business over time?", the percentage of businesses that said "more significant" dropped from 21% down to 13% while the percentage that said "less significant" increased from 24% up to 30%. This is just one data point in one region of the country, but it's something to think about.