In a much needed confirmation that Janet Yellen did not make a policy mistake by hiking rates yesterday, moments ago both the Empire State and Philly Feds smashed expectations, with the first printing at the highest level since September 2014 of 19.8, above the expected 4, and well above May's -1 contraction print, while the Philly Fed posted at 27.6, also beating consensus estimates of 24, if a drop from last month's 38.8...
# Meanwhile in Philadelphia, while modestly subdued, sentiment was also strong:
The index for current manufacturing activity in the region increased from a reading of 22.0 in April to 38.8 this month. The index has been positive for 10 consecutive months. This month, the index recovered some of the declines of the previous two months, but it still remains slightly below its high reading of 43.3 in February (see Chart 1). Fifty-one percent of the firms indicated increases in activity in May, while 13 percent reported decreases. The current new orders and shipments indexes remained at high readings. The shipments index increased 16 points, while the new orders index declined 2 points. Both the delivery times and unfilled orders indexes were positive for the seventh consecutive month, suggesting longer delivery times and increases in unfilled orders
Unlike New York, Philadelphia saw price pressures moderate: "The survey’s diffusion indexes for prices remained positive but decreased from their readings in April. On the cost side, 31 percent of the firms reported increases in the prices paid for inputs, compared with 36 percent in April, and the prices paid index decreased 10 points to 24.2. With respect to prices received for firms’ own manufactured goods, 21 percent of the firms reported higher prices, and 6 percent reported lower prices. The prices received index decreased 1 point."
# And while Philly firms expected continued growth, optimism fell:
Most of the survey’s six-month indicators decreased further from the higher readings seen at the beginning of the year. The diffusion index for future general activity decreased from 45.4 in April to 34.8 this month, its second consecutive decline. Forty-five percent of the manufacturers expect increases in activity over the next six months, while 10 percent expect declines. The indexes for future new orders and shipments also fell, decreasing 9 points and 6 points, respectively. The future employment diffusion index, at 29.2, fell 8 points. Thirty-seven percent of the firms expect to increase employment over the next six months, down from 46 percent last month.
Overall, however, sentiment remained strong with responses suggesting continued growth for the region’s manufacturing sector. All the broad indicators either improved or remained at high positive readings, suggesting continued expansion.
# In other words, if Yellen was looking for some validation that the economy is recovering, at least the soft data is happy to provide it. Whether it spills over into inflation prints remains to be seen...