To say that today's release of the Philly Fed Manufacturing report for the month of November was stronger than expected would be a gross understatement. The report absolutely crushed expectations. While economists were forecasting a level of 18.50, the actual level of the current conditions index spiked to 40.8. To put this level in perspective, it was the highest monthly reading since December 1993, and was just the eighth highest monthly reading since 1980. In terms of this month's 20.1 point increase, that was the largest monthly increase since June 2009. And finally, relative to expectations, it was the biggest beat since at least 1998. Although this indicator tends to be volatile, it was quite simply one of the strongest economic data points we have seen in quite some time.
The table to the right breaks down this month's Philly Fed report by each of its different components. As shown, while the headline reading blew the doors off, the internals were not quite as strong. While Shipments, New Orders, and Number of Employees saw big increases, we also saw declines in a number of components. Based on Prices Paid and Prices Received, inflation doesn't seem to be much of a problem as these two saw larger declines than any other components. The price data makes sense given weak PPI internals in yesterday's report. To sum up, the internals of this month's Philly Fed are a microcosm of the quandry currently facing the Fed. The labor market is tightening (big increases in Number of Employees and Average Workweek), but inflation is low, meaning the justification for rate hikes is still pretty weak based on macroeconomic data.