The Federal Reserve Bank of Philadelphia
, otherwise known as the Philly Fed, makes a monthly report called the Philadelphia Manufacturing Index. This data refers to manufacturing activity in the multi-state region of the Philly Fed. This may not sound significant, but whatever happens in this region is usually reflected in the nationwide PMI/ISM report that follows around 15 days later. These two reports along with other economic data often show the direction of the economy, whether it is up or down.
For example, on June 21, 2012, the Philadelphia Manufacturing Index report showed a surprising low level of -16.6, and this negative level resulted in a Dow -250 point down day. Since this report is so widely followed, I decided to make a historical table below to track market reactions to the monthly Philly Fed statement. This could serve as a guideline for knowing when to be invested in the stock market or when to sit on the sidelines.
I have backtracked on the table to a couple of significant months in 2011, and the monthly statistics below reflect a usual stock market recovery after a recession. I included September and October of 2011 to show the sharp reversal of the stock market and oil when the Philly Fed report went from a large negative reading to a positive reading. The October positive report also led to a multi-month bull rally of the stock market that ran all the way through April 2012 except for a few pullbacks. Knowing how stocks will react to the Philly Fed reports can enable you to make significant profits or stay safe during bad times.
I stopped recording in the table after June 2014 because the numbers were staying within a reasonable range for a recovering economy. In other words, if you visit the Philly Fed link at the top of the page, and the numbers are similar to the table below, then it is safe to be invested in the stock market. Whenever our next recession occurs, I will start recording data in the table again to show how to recognize recession economic data. In this way, you will know when to be in or out of stocks based on economic signs.
Two other points of interest at the Philly Fed website are located in the center of the home page. One is a chart of the ADS business conditions index, and you can see a dramatic difference between a recession and normal times. A second important economic indicator can be seen by clicking on the Leading Indexes tab to see how all the states are doing economically. If most of the states are showing green, then we are nowhere near a recession.