Philly Fed Business Conditions Index Shows Sharp Rise In Input Costs

The sharpest rise in input costs since July 2008 -- and no doubt tariff related -- leads an overheated Philly Fed report for July. The general business conditions index, at 25.7, tops Econoday's consensus range but it's the prices paid index that takes the headline, surging more than 11 points to 62.9 which is one of the very highest on record.

Some of these costs are being passed through as selling prices are up more than 3 points to 36.3 which is also among the highest on record. But not all the costs are being passed through which may explain a noticeable decline in the 6-month outlook, down nearly 6 points to 29.0 and a 2-year low.

But orders just keep pouring in for this sample, at 31.4 for a 13.5 point gain from June with unfilled orders very strong, at 11.0 for a nearly 14 point gain. Whether this sample can keep up with the business is a legitimate question given continuing lengthening in delivery times and the tariff-related dislocations, as detailed in yesterday's Beige Book report, surrounding metals and lumber.

Scarcities and rising prices were already evident in the regional reports even before tariffs were put in place. Now tariffs are adding to the pressure and are a wildcard playing out right now in the nation's manufacturing sector where growth, nevertheless, appears to be very strong.