Surprise drop in Philly Fed index for December, as new orders slump

Nevertheless, economists believed that the fundamentals for the sector were still "strong".

The Federal Reserve Bank of Philadelphia's manufacturing sector index dropped from a print of 26.3 for November to 11.1 in December.

Economists had penciled-in a reading of 20.0.

A gauge for new orders was especially weak, slumping from a reading of 37.9 to 2.3.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, labelled the drop in orders "disconcerting" and added to the weight of evidence that manufacturing activity was no longer accelerating, but doubted that other regional or national surveys would echo it.

"The fundamentals for manufacturing are still strong, and we doubt the Covid third wave has done as much damage as the Philly orders index suggests," Shepherdson added.

"Our base case is that the December ISM index will drop a couple of points, but it will still clearly be consistent with ongoing recovery in manufacturing."

Price pressures also eased substantially, with a sub-index tied to the prices paid by companies falling from 38.9 to 27.1, while another tied to the prices received by firms slipped from 25.4 to 18.0.

Hiring also slowed, with the corresponding sub-index retreating from 27.2 to 8.5, while the sub-index tracking shipments fell from 24.9 to 14.4.