Philly Fed Contains November’s Strong Gains

In December, the Philadelphia Fed manufacturing index continued to improve after already impressive gains in November. The headline index rose from 22.5 to 24.3, while the consensus was looking for a significant decline (to 24.3).

The details show an increase is new orders (14.6 from 10.4), unfilled orders (6.5 from 3.7), delivery time (8.5 from 2.1), inventories (-2.0 from -5.9) and average workweek (19.3 from 10.9), while shipments (7.3 from 16.8) and number of employees (5.1 from13.3) dropped significantly. Inflationary pressures mounted as both prices paid (51.2 from 34.0) and prices received (10.7 from -2.1) rose significantly.

The forward looking index continued to improve too as the headline index rose from 49.0 to 50.5. After the pull-back in the summer months, signs are increasing that the US manufacturing sector is regaining strength.

In the week ended December the 11th, US initial claims dropped by 3 000 from an upwardly revised 423 000 to 420 000, while the consensus was looking for an increase to 425 000. The 4-week moving average continued its downward trend, dropping from 428 000 to 422 750, the lowest level since August 2008.

Continuing claims, which are reported with an extra week lag, rose and even surprised on the upside of expectations, after reaching record low levels in the week before. In the week ended December the 4th, continuing claims rose from an upwardly adjusted 4 113 000 to 4 135 000. After the pause since the start of the year, the claims are now clearly back on their downtrend, although they remain at rather elevated levels.

In November, housing starts came out slightly higher than expected rising by 3.9% M/M to a total level of 555 000, which was mainly due to upward adjustments in the previous month’s figures. Building permits, on the contrary, showed an unexpected decline. On a monthly basis, permits dropped by 4.0% M/M to a level of 530 000, significantly below the expected 560 000 level. Housing under construction stabilized, while housing completed dropped sharply (-14.1% M/M) in November.

Nevertheless, both housing starts and permits remain close to record low levels as inventories of unsold houses are high, credit tight and unemployment remains elevated and therefore it will take time for the housing starts and permits to recover.

Content provided by: KBC Bank