A month ago we mocked the Philly Fed number which printed at an outlier level of 8.1, slamming expectations of a negative print, and sending algos into overbuydrive. A week ago we were validated when the annual revision brought that number down from 8.1 to 4.6. Today we get confirmation that the December print was a total farce, with a January Philly Fed print which is once again solidly in negative territory, or -5.8, which just happens to be the biggest miss to expectations of 5.6 in seven months. Yet while a month ago the huge beat was a reason for the robots to ramp stocks, today’s miss is a reason to… ramp stocks even more. Why? Because moments before the disappointing announcement the Fed decided to inject even more liquidity in addition to the now daily unsterilized POMO, following the resumption of repos, which injected some $210 million in reserves into dealers. This is in addition to the $3 or so billion that today’s POMO will add as stock purchasing dry powder for banks.
This is how today’s Philly Fed looked: note the collapse in number of employees, which apparently nobody cares about anymore:
From the report:
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a revised reading of 4.6 in December to -5.8 this month (see Chart).* The demand for manufactured goods showed slight declines this month: The new orders index declined from a revised reading of 4.9 in December to -4.3 in January. The shipments index remained slightly positive but suggests no overall growth – the percentage of firms reporting increased shipments was mostly offset by the percentage reporting decreased shipments (26 percent). The indexes for both delivery times and unfilled orders recorded slightly negative readings this month.
Labor market conditions at reporting firms deteriorated this month. The employment index, at -5.2, fell from -0.2 in December. The percentage of firms reporting decreases in employment (16 percent) exceeded the percentage reporting increases (11 percent). Firms also indicated a decrease in the average workweek compared with last month.
And why was this huge miss completely ignored by algos and bank prop desks? Here’s why, courtesy of the first Fed repo operation of 2013:
To summarize: two big misses to unadjusted data massaged by seasonal adjustments, and a major miss to a diffusion index, all ignored and offset by even more Fed liquidity.