Why mid-Atlantic region shipments and orders touch 10-year highs

Market Realist

Economic indicators and earnings shrug off events overseas (Part 2 of 10)

(Continued from Part 1)

Mid-Atlantic region shipments and orders touch ten-year highs

The Philadelphia Fed released the results of its Business Outlook Survey for July, on Thursday, July 17. The headline index reading, the General Activity Index, came in at 23.9—the highest level since March, 2011, and its fifth consecutive increase. The reading had clocked 17.8 in June. The reading was supported by the critical sub-indices of new orders and shipments which recorded strong growth. Both sub-indices are at their highest levels since July, 2004. Employment gains were reported as well, although the increase wasn’t as strong as the new orders and shipments indices. More producers reported higher prices received for output, while the number of manufacturers reporting higher prices paid for inputs was almost at the same levels reported in June. All sub-indices for future business activity, over the next six months, were positive. Manufacturers reported a strong outlook for future business conditions, especially new orders. Almost a third of the firms that were surveyed, planned to hire in the next six months, compared to 4%, which planned on job cuts.

Economic impact of the Business Outlook Survey

While the survey results are based on a sample of manufacturers in the mid-Atlantic region, the timeliness of the report makes it a leading indicator for forecasting the nationwide reports of industrial production and durable goods orders for July, which will release on August 15 and August 28, respectively. Manufacturing sector companies including those in exchange-traded funds (or ETFs) like the SPDR Industry Select Sector ETF (XLI), the iShares US Industrials ETF (IYJ), and the Vanguard Industrials ETF, are usually impacted by the report. All three ETFs have investments in blue-chip industrial conglomerates like Honeywell and General Electric (GE). Both General Electric and Honeywell are also part of the iShares Select Dividend ETF (DVY). An uptick in new orders and shipments would also impact transportation stocks, like those included in the iShares Transportation Average ETF (IYT).

What is the Philadelphia Fed’s Business Outlook Survey?

The Business Outlook Survey is a monthly survey of manufacturers conducted by the Federal Reserve Bank of Philadelphia. Survey participants indicate the direction of change in overall business activity and in the various measures of activity at their plants—employment, working hours, new and unfilled orders, shipments, inventories, delivery times, and changes in prices paid for purchases and prices received for sales. Primarily a manufacturing survey, it precedes the index of industrial production by nearly three weeks. As a result, it’s known as a leading manufacturing indicator. In the next section, we’ll discuss the New York Fed’s Empire State Manufacturing Survey, which released on Tuesday, July 15.

Continue to Part 3

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