Philly Fed Index Soars To Highest Level In Over 20 Years

(RTTNews) - After reporting a modest slowdown in the pace of growth in regional manufacturing activity in the previous month, the Federal Reserve Bank of Philadelphia released a report on Thursday showing that its index of manufacturing activity jumped to its highest level in over twenty years in November.

The Philly Fed said its diffusion index for current activity surged up to 40.8 in November from 20.7 in October, with a positive reading indicating growth in regional manufacturing activity.

The substantial increase came as a shock to most economists, as the consensus estimate called for the index to drop to a reading of 18.0.

With the unexpected increase, the Philly Fed Index reached its highest level since hitting 41.2 in December of 1993.

The report also showed significant jumps by the new orders and shipments indexes. The new orders index soared to 35.7 in November from 17.3 in October, while the shipments index surged up to 31.9 from 16.6.

The number of employees index also climbed to 22.4 in November from 12.1 in October, indicating a notable acceleration in job growth.

On the other hand, the prices paid index fell to 17.3 in November from 27.6 in October and the prices received index slid to 11.5 from 20.8.

Paul Dales, Senior U.S. Economist at Capital Economics, said the jump by the Philly Fed Index is hard to take seriously when other surveys have eased, overseas demand has softened and the dollar has strengthened.

"It's worth remembering that the headline index is derived from a separate question on overall business conditions, which means it is vulnerable to swings in sentiment," Dales said.

He added, "And while all the sub-indices on new orders, employment etc. all improved sharply, they are consistent with a headline index of closer to +20 than +40."

Monday morning, the New York Fed released a separate report showing a rebound by its index of regional manufacturing activity.

The New York Fed said its general business conditions index climbed to 10.2 in November from 6.2 in October. Economists had expected the index to rise to a reading of 11.0.

While the rebound by the index points to somewhat faster growth, the New York Fed noted that the October and November readings still point to a downshift in the pace of growth compared with the May-September period.