Philadelphia Fed manufacturing gauge jumps to highest level in eight months

The numbers: The Philadelphia Fed said Thursday its gauge of business activity in its region surged in January. The regional Fed bank’s index rose to 17 in January from 2.4 in the prior month.

That’s the highest reading in eight months. Economists polled by MarketWatch expected a 2.8 reading. Any reading above zero indicates improving conditions.

What happened: The headline index is based on a single stand-alone question about business conditions unlike the national ISM manufacturing purchasing managers index which is a composite based on component surveys.

The ISM barometer on new orders increased 7 points to 18.2 in January. Shipments rose 8 points to 23.4. The measure on six-month business outlook edged up 4 points to 38.4.

Big picture: Investors look at the Philadelphia Fed index and a separate Empire State index for the New York region to get a sense of the ISM manufacturing index, which has been contracting for five straight months. The two regional Fed indicators have been stronger than the ISM index in recent months. In January, the Empire State index edged higher to 4.8 from 3.3 in the prior month.

Some economists think the relative strength shows the East Coast is less reliant on trade with China. In December, the ISM factory index slipped to 47.2, the weakest reading since the recession. The January reading will come early next month.

What are they saying? “The data are suggesting somewhat better conditions and no further weakening in manufacturing,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.