Good News in Philly By Tony Crescenzi RealMoney.com Contributor 5/15/2008 12:00 PM EDT

The Philadelphia Fed's Business Outlook Survey yielded results that were better than expected in early May, with survey's index on general business conditions rising to -15.6 from -24.9 in April, its highest reading since December. Details within the survey were actually better than the headline figure, which results from a stand-alone question.

In other words, perceptions about general business conditions were worse than actual conditions, at least based on responses to specific questions such as new orders, shipments, employment, and the length of the workweek. The six-month outlook also improved, moving to its highest since October 2007. It is notable that the Philly index has not fallen nearly as much in the current downturn as was the case in past downturns, providing additional support for the idea that improvements in inventory management have helped limit the extent of the downturn.

Among the details of the report indicating greater improvement than the headline figure suggests is the index on new orders, which at 30% accounts for the largest weighting in the monthly ISM index. In the Philly survey, the index on new orders increased to -3.7 from -18.8, the best since December.

Another important index was the index on shipments, which increased to +2.2 from -8.0, also the best since December. This component indicates that output increased in the Philly region. There was also an increase in the employment component (to -1.0 from -11.1) and the index on the average workweek (to -5.6 from -12.3). The index on the six-month outlook increased to 28.2 from 13.7, its highest since last October.

When combined with today's Empire survey, the chances at a respectable ISM index have increased. If chain-store sales move to higher than 3.0% in the time ahead, the ISM index could move above 50 by the end of the summer a prospect that could reinforce recent gains in risk assets and the improvements in credit markets. Whether all of this lasts is a question for another day.

RELATED STORIES
Big Output Drop
More Jobless Claims Point to Shallow Recession
CPI Buoys Dollar

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

Read our conflicts and disclosure policy.