Philly Fed Shows Economy's Weakness

"The survey’s broadest measure of manufacturing conditions, the diffusion  index of current activity, decreased from a reading -5.8 in January to -12.5 this month (see Chart). The demand for manufactured goods also showed slight declines this month: The new orders index declined from a reading of -4.3 in January to -7.8 in February. Despite negative readings for general activity and new orders, the shipments index showed improvement: The index remained positive and edged slightly higher to 2.4. The percentage of firms reporting increased shipments (25 percent) was slightly greater than the percentage reporting declines (22 percent)."

The diffusion index also suggests a further decline for stocks:

 Stocks are still down, but have stabilized with the Dow off about 55 points. 

Correlation Between Philly Fed and Jobs

source: Zero Hedge

If this correlation holds, we could see a 700-1000 point down day on the Dow.

Philly Fed Plunges Into the Abyss

Philly Fed plunged to -30.7 on expectations of +2.0

Some observations from Bloomberg's Joseph Brusuelas:

• U.S. “sliding into contraction”, given sharp decline in consumer, purchasing managers sentiment, along with ongoing  housing mkt depression, says Brusuelas
• U.S. existing home sales down 3.5% M/m to 4.67m vs est. increase to 4.9m (range 4.6m-5.2m); prior revised to 4.84m from 4.77m
• Cancellations likely due to pulling back of credit by banks
• LEI up 0.5% in July vs est. 0.2% (range 0.5% drop to 0.6% gain)

Philly Fed Shows Economic Contraction, But Stocks Still Higher

from the Philly Fed's own report:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 3.9 in May to -7.7, its first negative reading since last September (see Chart). The demand for manufactured goods, as measured by the current new orders index, showed a similar decline: The index fell 13 points and recorded its first negative reading since last October. The current shipments index fell just 3 points but remained slightly positive. Firms reported declines in inventories and unfilled orders, and shorter delivery times.

Firms’ responses suggested little overall improvement in the labor market this month. The current employment index remained positive for the ninth consecutive month, but only 14 percent of the firms reported an increase in employment, while 10 percent reported a decline. Only  slightly more firms reported a longer workweek (14 percent) than reported a shorter one (12 percent) and the workweek index was down only slightly from May.

It gets worse. Look what the survey said about employment:

The future general activity index decreased 14 points this month and has now dropped 61 points over the last three months (see Chart). The indexes for future new orders and shipments also declined, decreasing 9 and 14 points, respectively. The index for future employment fell 17  points and has declined 32 points in the last two months. Still, slightly more firms expect to increase employment over the next six months  (21 percent) than expect to decrease employment (16 percent).