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Economy in Brief

Philadelphia Fed Index Passed the Soft Spot
by Tom Moeller April 21, 2005

The Philadelphia Fed's April Index of General Business Conditions in the manufacturing sector recovered all of the prior month's decline and rose to 25.3. Consensus expectations had been for a lesser increase to 14.0.

During the last ten years there has been a 69% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 52% correlation with q/q growth in real GDP.

The shipments index more than doubled the prior month's level and rose to its highest since August. The new orders index also rose sharply to the highest level of the year. The number of employees index recovered most of the prior two months' decline. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.

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

The separate index of expected business conditions in six months improved moderately to the highest level this year.

The prices paid index also recovered much of the prior two months' decline. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it's been 43%.

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 April Mar April '04 2004 2003 2002
General Activity Index 25.3 11.4 32.8 28.1 10.6 7.7
Prices Paid Index 50.5 29.7 51.3 51.3 16.8 12.3
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