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Economy in Brief

Philadelphia Fed Activity Index Down, Components Up
by Tom Moeller September 16, 2004

The Philadelphia Fed’s September index of general business conditions in the manufacturing sector fell much more than expected to 13.4, the lowest in nearly a year. The level, however, still suggested positive growth. The 15.1 point drop versus August followed a 7.6 point July decline and was versus Consensus expectations for a decline to 25.0.

During the last ten years there has been a 71% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.

Virtually all of the sub indexes improved m/m especially new orders, unfilled orders, delivery times, inventories, the number of employees and the average workweek. Shipments fell.

The business conditions index reflects a separate survey question, not the sub indexes.

The separate index of expected business conditions in six months fell sharply and lost about half of the 16.4 point improvement in August.

The prices paid index rose to the second highest level of the year. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the PPI for intermediate goods. The correlation with the finished goods PPI has been 41% and with the CPI it's been 45%.

The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.

The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found here.

Philadelphia Fed Business Outlook Sept Aug Sept '03 2003 2002 2001
General Activity Index 13.4 28.5 16.5 10.6 7.7 -17.2
Prices Paid Index 56.4 53.7 21.0 16.7 12.2 -0.9
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