Reading the Strong Philly Fed Data

December Philly Fed continues trend of better economic news. Current manufacturing activity was positive for the third consecutive month and increased from 3.6 in November to 10.3 (anything over 0 indicates growth). The percentage of firms reporting increases in activity (25 percent) exceeded the percentage reporting decreases (15 percent). The index for current new orders also increased.

This is a positive, because it implies that business spending may begin rising — that means higher factory orders and capital goods orders.

Twice as many firms reported declines in inventories (30 percent) as reported increases (15 percent).

This follows on a better-than-expected Empire Manufacturing report for December, out this morning.

The only cautious note was November industrial production, which fell to -0.2 percent, below expectations. Capacity utilization at 77.8 percent was in-line with expectations.

Bottom line: manufacturing is improving, but companies are keeping inventories lean. They are not taking on added capacity, at least not yet.

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