Philly Fed Index Despite Headline Shows Slowing

The headline for the Philly Fed index, which came in ahead of expectations at 23.2, doesn't tell April's story which is one of slowing and price friction. New orders, at 18.4 this month, have been cut in half with backlog orders, at 7.8 vs 20.1, more than half. Shipments are down nearly 10 points to 23.9.

The report's text basically offers just numbers but indications of tariff effects are visible. Prices paid jumped nearly 14 points to 56.4 for the highest reading in 7 years. And prices received jumped more than 9 points to 29.8 which is a 10-year high and an echo of yesterday's Beige Book which said higher metal prices are being passed through, at least to some customers.

Whether the inflation push is welcome can be debated, but the slowing in orders is probably a positive. The Philly Fed's sample has been reporting more business than it can handle with capacity stress once again a major theme: delivery times at 20.7 are up nearly 7 points to indicate the longest delays in 50 years of records; the workweek is up nearly 9 points to 21.6 for one of heaviest on record; while employment at 27.1 is up a point-and-a-half and just off expansion highs.

One indication that is relatively stable, in contrast to Monday's Empire State report, is only a moderate decline in 6-month optimism, down more than 7 points to a still solid 40.7 which nevertheless is the least optimistic since last July.

The bottom line for this report is slowing order growth with tariff effects inflating price readings but only having a limited impact on optimism. Watch for the Richmond Fed's manufacturing report on Tuesday's calendar.