Philly Fed Business Outlook Shows Strong Growth

Much like the Empire State report released earlier this week, the Philly Fed report for October shows strong growth in new orders and a welcome working down of backlog orders. First let's look at October's headline which came in at a very strong and higher-than-expected 22.2 which is right at the average for this index over the past year.

Now the details which are led by new orders, posting a very solid 19.3 and down only slightly from September. The big positive is an outright contraction in backlog orders which came in at minus 2.3 vs a highly elevated 12.6 in September. This suggests that Philly's sample, like the sample for Empire State, is getting ahead of orders and that capacity constraints are no longer slowing production or delaying shipments, the latter rising nearly 5 points to 24.5 in this report. Delivery times in both reports are improving this month with pressures on input costs easing slightly.

But there is still plenty of supply-side pressure in Philly's sample as the workweek is extending this month, up more than 6 points to 20.8, with hiring up nearly 2 points to a very strong 19.5.

This report points to solid conditions going into year end, both on the demand side and the supply side, for a factory sector that may well be, along with employment, the central strengths of the 2018 economy.