Philly Fed Business Index Below Consensus

Like Monday's Empire State report that signaled a significant downdraft in manufacturing this month, the Philadelphia Fed's index likewise came in below Econoday's consensus range at only 0.3 for a 16.3 point decline from May. Yet outside of the headline which is not a composite but a general sentiment reading based on a single question, details in today's report are less alarming. New orders did slow but not very much and remain respectable and solid at 8.3. And unfilled orders are building nicely so far this month, at 10.2 for a more than 8 point gain which is very strong for this reading. Shipments continue to move out the door at 16.6 and hiring remains solid at 9.4.

Yet one sign of easing demand may be coming from prices as input costs slowed very sharply, down more than 10 points to 12.9, with selling prices slowing even more so, down nearly 17 points to only 0.6. But one sign of strength is the 6-month outlook which, though at 21.4 which is modest for this particular reading, is actually up slightly from May.

The subtext of this report as well as Empire State (where June's index was -8.6 in what was an historically weak report) is the impact, whether psychological or tangible, of heightened trade tensions specifically between the US and China. Judging at least by the headlines of the two reports, the psychological impact is substantial. For the Federal Reserve, which shifted to an easing bias only yesterday and underscored emerging trouble in the manufacturing sector, today's report despite the elements of strength will likely build expectations nevertheless for a rate cut at the July FOMC meeting.