Behind the Rise in the Philly Fed Manufacturing Index

It’s always a mistake to read too much into regional manufacturing reports, but it’s interesting to see what’s behind the increase in the Philadelphia Fed survey today that rose from a September reading of -1.0 to +5.7 in October, an index where positive and negative numbers indicate expansion and contraction respectively.

As shown below, while the overall measure of business conditions was positive for the first time in six months, it appears that this optimistic take was due almost exclusively to having shipped more goods.

(Note: The direction of the arrows indicates the direction of the monthly move, while the color indicates whether that move was good or bad, irrespective of whether there was expansion or contraction.)

Clearly, the headline reading misrepresents the underlying conditions as new orders went from expansion to contraction while inventories rose and the labor market worsened. While rising prices received were no doubt a positive development,  prices paid rose much more and about the only good news here is that shipments were about steady after plunging last month.