Trade Desk Thoughts - Philadelphia Fed Manufacturing Index

Philadelphia Fed Manufacturing Index (Oct) Actual -37.50, Expected -9.0, Previous 3.8

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 decline in the index during October was the most in the history of the series. The indexes for general activity, new orders, shipments, and employment all decreased sharply from their readings in September. Cost pressures were considerably less widespread this month and fewer firms reported increases in the prices of their own manufactured goods. Most of the survey's indicators of future activity also fell this month, suggesting that the region's manufacturing executives expect no growth over the next six months.

"It continues to look very much like the economy is in recession," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "Additionally, given the pressures in the financial system it's becoming far more likely we'll see a deeper and longer lasting recession than previous ones. We can also expect to see see further interest rate reductions from the FOMC, starting with at least 25 basis points later this month."

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