More Regional Fed Data for July Points to Stronger Business Conditions Ahead

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While the markets have yet to see national manufacturing data, there has been an improvement in two of the regional reports showing some live indications for the month of July. These reports might be overlooked when expansion continues and unemployment remains so low, but this is a time where the market is scrutinizing every bit of economic data it can ahead of the Federal Reserve’s decision on interest rates at the end of July, with a 25 basis point cut widely expected, and maybe even more.

The Federal Reserve Bank of Philadelphia reported on Thursday that manufacturing conditions in its region showed improvement in July. Its July Manufacturing Business Outlook Survey current general activity index recovered with a 0.3-point gain to a reading of 21.8, and the survey’s future indexes continue to project growth expectations over the next six months.

The Philly Fed’s survey for general activity, new orders, shipments and employment all remained positive in July and all increased from their June readings. The current new orders index increased 11 points, while the shipments index increased eight points.

The New York Federal Reserve Bank recently issued a separate report showing that business activity rebounded modestly in New York State. The July 2019 Empire State Manufacturing Survey showed that the headline general business conditions index rose to come back out of negative territory with a 13-point gain to 4.3 in July. Its new orders were little changed, while shipments increased, but the region’s unfilled orders and inventories continued to move lower at the same time that delivery times were longer.

Regional employment data in the New York State area showed that the employment index remained negative and fell to its lowest reading in almost three years. Regional inflation was tame, as input price increases continued to moderate somewhat while selling price gains remained modest. Similar to the Philly Fed survey, the report’s assessment on the six-month outlook indicated that firms were fairly optimistic about future business conditions.

On a broader scope, the Federal Reserve released its Beige Book on July 17, but the cut-off date for the survey of outside business leaders was July 8. The Beige Book’s assessment of economic growth was modest as there were still widespread concerns over tariffs and trade-related uncertainty. Inflation was shown to be stable to down, while employment growth is modest and down a tad from the report in May. The Beige Book’s assessment of manufacturing was generally flat to modestly improving in June and July, while agriculture was down with heavy rainfall and oil and gas was down as well.

As of Thursday, July 18, 2019, the CME’s FedWatch Tool shows a 60% chance that the federal funds rate will be lowered to a 2.00% to 2.25% range, but there is now a 40% chance that the target range of fed funds would be cut to 1.75% to 2.00%.


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