Philly Fed Shows Unusual Strength

Rarely in its 50-year history has the Philly Fed's manufacturing report shown such unusual strength and with it, unusual capacity stress. At 22.3 in March, the headline index is once again over 20 but its the combination of new orders, at 35.7 for an 11.2 point monthly surge, and unfilled orders at 20.1 and a 5.6 monthly gain, that is enormously strong.

Shipments are at 32.4 and employment at 25.6, also at a feverish pitch which raises the question of sustainability for this sample. Delivery times are slowing and input costs are very high with selling prices and especially expectations for future selling prices near record highs. All this strength continues to drive the sample's overall look higher, up a very sharp 6.7 points in March to 47.9.

These results are matched by similar extraordinary strength in the Empire State report which was also released this morning. Yet the strong upward signals being sent by small sample surveys like Philly and Empire State have yet to matched by the actual factory sector where strength, though tangible, is much less extraordinary and much less at risk of capacity dislocations.