The Philadelphia Fed reported a significant improvement in regional business activity in August, with its gauge rising to 12 from negative 13.5 in the previous month. This positive reading marks a break from the 11 consecutive months of contraction experienced previously.

The increase in the Philly Fed index surpassed economists' expectations. Analysts polled by the Wall Street Journal had forecasted a negative 10 reading for August.

Key Details

There were several notable developments in specific areas of concern:

  1. New orders showed a substantial increase of 31.9 points, bringing the barometer to 16 in August.
  2. Shipments also experienced a notable rise, with the index increasing by 18.2 points to reach 5.7.
  3. However, the measure of the six-month business outlook dropped by 25 points to 3.9, reaching its lowest level since May.
  4. The prices paid index rose by 11 points to 20.8.

Big Picture

These latest figures provide some optimism for the manufacturing sector, which has been struggling to find stability. The data suggests that there may be tentative signs of improvement, although caution should still be exercised.

Weak demand and the burden of higher interest rates have been major challenges for manufacturers.

It is important to note that regional readings have been volatile, as demonstrated by the recent sharp decline in manufacturing reported by the Empire State index in New York. The general business conditions index from the New York Fed fell by 20.1 points to negative 19 in August.

The New York and Philadelphia Fed indices are among the earliest indicators available for assessing the state of the manufacturing sector.

In July, the national ISM factory index contracted for the ninth consecutive month, with a rise to 46.4% from the previous month's 46%.

Market Reaction

In response to the positive report, stocks in DJIA and SPX were expected to open higher on Thursday. Additionally, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) rose to 4.3%.

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