The Philadelphia Federal Reserve yesterday released its outlook survey for June. The data on manufacturing in the Mid-Atlantic region were much stronger than expected.
And that bodes well for the economic outlook and a continued rally in the S&P 500 Index.
The reading was positive 27.5… a huge rise from last month’s negative 43.1 reading. That’s the survey’s first positive reading since February. Wall Street had expected it to remain in negative territory and reflect a reading of negative 21.4
This tells us businesses in eastern Pennsylvania, southern New Jersey, and Delaware are optimistic about their growth opportunity going forward. It’s also a signal that regional economic growth is rebounding.
That should be a positive for the national economic outlook and the S&P 500 Index.
This data gives us a better read on demand, and indicates what’s going to happen to backlog and what future demand should look like. We can look at these as indicators of future economic activity.
Unfilled orders building up–you can’t have any unfilled orders if there’s no demand. In March, April, and May we saw the country go into lockdown, stay shut, and then begin to reopen.
Economic activity was more or less nonexistent. This is why second-quarter gross domestic product data are likely to be so weak. Dallas Federal Reserve President Robert Kaplan recent said he anticipates contraction of 35% to 40%.
In June, however, that the number has gone back to almost flat. That means companies ended the survey period with orders not being completed. That’s also known as backlog. It means you’re going to enter the next month with more orders to fulfill. And if demand stays resilient or picks up because economic activity is rebounding, your backlog will only build.
The inventory data tell a very similar story. After a big increase, it’s dropping once more. That’s important because when inventories are rising, like they did in May, it means no one is buying your goods.