Our Call
Base case: +7 – a cooling but still-positive read yet below consensus and a touch above bearish street calls.
Why +7?:
-
September’s Philly surge was outsized and typically mean-reverts.
-
Forward cues are mixed: national PMIs show demand softness (ISM new orders back sub-50), regionals outside Philly have skewed weaker recently and Empire State for October is roughly flat/soft, arguing for a pullback.
-
Still, September’s Philly internals (orders/shipments positive, workweek up, future index firm) argue against a collapse to negative.
Our Call – Outlined
-
Last month (Sep): headline surged to +23.2 (highest since Jan). New orders flipped positive (+12.4), shipments jumped (+26.1), employment modestly positive (+5.6), and prices paid cooled but stayed elevated (46.8). The future activity index also improved to 31.5.
-
National reads since then: ISM Manufacturing PMI ticked up to 49.1 but new orders slid back to 48.9 (contraction). S&P Global’s Sept PMI also flagged softer demand momentum.
-
Other regionals around the turn of the month:
-
Empire State (Oct) improved from Sept’s slump but is roughly flat to slightly negative (vs. -8.7 in Sept). That points to cooling after summer strength.
-
Richmond (Sep) fell further (-17), Dallas (Sep) weakened (-8.7), and Chicago PMI (Sep) stayed deep sub-50 (40.6). Together they flag softer breadth into October.
-
-
Macro context into the print: price pressure moderated in Sept PPI (Aug y/y cooled to 2.6%; Sept PPI is scheduled for release at the same time as Philly), while CPI has been pushed to Oct 24 due to the shutdown. Philly will publish on time (it’s a Fed survey).
What We’ll be Watching
-
New Orders: Expect low-single-digit positive (roughly +2 to +6). A drop back <0 would be the clearest “cooling” signal. (Last: +12.4).
-
Shipments: Likely moderate lower from last month’s jump (Last: +26.1).
-
Employment / Workweek: Small-positive to flat (Last: +5.6 / +14.9). A dip negative would echo Richmond/Dallas softness.
-
Prices Paid/Received: Bias to sideways/slightly lower after Sept’s cool-off, consistent with softer national price momentum. (Last: 46.8 / 18.8).
Distribution / Risks
-
< 0: 25% (Empire State softness + weak regionals win out)
-
0 to 10: 45% (my base: +7)
-
10 to 20: 25% (lingering momentum from Sept)
-
> 20: 5% (another outsized upside surprise)
Upside risk: local idiosyncrasies (Philly can whipsaw) or tariff-related front-loading supporting orders. Downside risk: tariff uncertainty and softening domestic demand weighing on orders (mirrored in the other regionals).
Market Reaction
-
Print > 15: modest bear-steepening impulse; USD bid on the margins (look to USDJPY topside & EURUSD dips) unless the PPI (same time) contradicts.
-
0–10 (base): limited market impact; micro-moves fadeable; focus shifts quickly to PPI and Fed-speak.
-
< 0: risk-off tilt; USD softer vs JPY/CHF, USTs bid – especially if prices paid also cool.
Our Call – Conclusion
We expect the October Philly Fed to ease to +7, a touch below consensus but above the most cautious calls, cooling, not cracking. For trading implications, the components will do the heavy lifting: a low positive new-orders print would validate a soft-landing narrative, while a slide back below zero, especially alongside cooler prices paid, would skew risk-off and support duration.
Conversely, a surprise above 15 would revive momentum and nudge USD and front-end yields higher unless contradicted by PPI.