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Philly Fed Turns Positive

10/21/2011

Back in late August, the Boston Red Sox looked like a lock to reach the MLB playoffs – in fact, a favorite to play in the World Series. Also in late August, the Philadelphia Fed’s Business Outlook Survey reported a -30.7, an ominous number that many analysts pointed to as a signal that a second recession was also a lock.
 
However, subsequent Philly Fed releases – September’s -17.5 and yesterday’s October reading of +8.7 – suggests the impending U.S. recession call will suffer the same fate as the playoffs with the Boston Red Sox. More likely, the dismal figure reported in late August was the reactionary shock to the late July D.C. follies, not an accurate measure of manufacturing conditions. As a result of the Philly Fed report, the expectation for Tuesday’s November 1 ISM Manufacturing figure is now a mild improvement upon last month’s 51.6, reversing the sub-50 fears.
 
The “crisis of confidence” is still with us. Policy makers in D.C. and Europe remain as headwinds for the capital markets. But more and more evidence is being presented that they stand alone. U.S. and Chinese economic data as well as Q3 corporate earnings are non-recessionary. 
 
•  October Philly Fed reports at +8.7, well ahead of -9.6 expectations and last month’s -17.6.
•  New orders increased to +7.8 from -11.3.
•  Capital spending expectations rose to +12.3 from +5.5.
•  Expected six-month business conditions rose to +27.2 from +21.4.
•  The percentage of firms expecting to increase employment over the next six months (25%) is higher than the percentage expecting to decrease employment (11%).
•  Average workweek index rose to +.1 from -13.7.
 
 
Philadelphia Fed Business Outlook Survey, July 2008 to October 2011

Source:  Bloomberg

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