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Philly Fed Index offers good and bad news

Manufacturing activity in the Philadelphia area unexpectedly declined at an increased rate in December, as reported by the Federal Reserve Bank of Philadelphia on Thursday.

The report showed the Philly Fed's diffusion index for current general activity falling to -10.5 in December, down from -5.9 in November. A negative value on this index signifies a contraction. This decrease defied economists' predictions, which had anticipated the index improving slightly to -3.0.

A significant factor in the downturn of the headline index was a marked decrease in new orders. The new orders index sharply dropped to -25.6 in December from a slightly positive reading of 1.3 in November. On the other hand, the diffusion index for future general activity significantly increased, jumping to 12.1 from a previous -2.1 in November. This marks its highest level since July. Our take: Current conditions seem to be much weaker than generally expected, signaling some more downside surprises for upcoming data releases. If bad news is good news, as markets expect more rate cuts, this may give some more support short-term but caution warranted.


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