Merk Investments: Philadelphia Fed
The Philadelphia Fed general business activity index declined to 17.1 on the back of a sharp jump in the prices paid component to 69.3 and steep decline in new orders to -12.4. The headline, which is a single standing question, and not the sum of the underlying components, did provide a good read on what is occurring in the industrial sector. Of the eight subcomponents, six were signaling continuing contraction and both new orders and the employment indicators (-6.9) fell.
Through the month of May, industrial production outside the high tech industry fell 1.2% over the past year and one gets the sense that until the auto industry revs up production in the third quarter, that manufacturing sector will remain flat on its back. Over the past few months we have been making the case for a “stagflation-lite: scenario. The Philadelphia Fed, like much of the recent macro data does tend to support that call. The fall in growth, which represents the “stag” and the sharp uptick in the prices paid component is the “inflation” portion of the concept that has become a very vivid and unfortunately all true too description of the current economic environment.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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