Philly Fed: Manufacturing Hits 18-Year Low In November

Philadelphia Fed Manufacturing Index (Nov) Actual -39.3, Expected -35.0, Previous -37.5

Release Explanation: The Philly Fed index is a survey of manufacturing activity in the Third Federal Reserve District (eastern Pennsylvania, southern New Jersey, and Delaware). It attempts to index economic activity by polling participants in regards to employment, working hours, new and unfilled orders, shipments inventories, delivery times, prices paid, and prices received. With the Northeast being a major hub of manufacturing activity, a stronger Philly Fed index is suggestive of future economic growth in the area.

GDP is directly affected by the manufacturing activity in the country, of which the Philadelphia region is a major component off. Durable goods and other releases such as Industrial output can be affected by the Philly Fed.

The currency may experience a slight movement on the release, but the significance of the data will be filtered down to Durable Goods and GDP, where the impact may be more severe.

Trade Desk Thoughts: The Philadelphia Fed's index of current activity decreased from -37.5 in October to -39.3 in November after falling a dramatic 41 points last month, and is now at its lowest level since October 1990. Evidence of weakness was also seen in the other broad indicators this month.

Input price pressures, which had been moderating over recent months, showed a marked decrease in November. Also, for the first time since 2003, more firms reported declines in the prices of their own manufactured goods than reported increases. Most of the survey's indicators of future activity slid further into negative territory this month, suggesting that the region's manufacturing executives expect continued declines over the next six months.

"It continues to look as if the deflationary recession is worsening," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "The Fed could possibly take additional radical measures to support the economy, including the implimentation of a conditional monetary policy and the targeting of Treasury rates out along the yield curve."

Forex Technical Reaction: The S&P is at the lows of the session, down 3.05% already this morning. The yen is continuing to strengthen against the dollar as investors flee risk and the dollar is gaining on the higher-yielding currencies.

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