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Economy in Brief

Philadelphia Fed Index Negative
by Tom Moeller June 17, 2005

The Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed went negative in June for the first month in just over two years. The 9.5 point m/m decline to -2.2 added to declines earlier this year which have lowered the index 27.6 points since December. Consensus expectations had been for a positive reading of 10.0 in June.

During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.

The new orders index dropped 12.5 points to the lowest level in two years and shipments also fell hard to 6.6 versus a high near 40 about one year ago. The index covering the number of employees rose slightly to 7.1 but that is down versus last year's high of 22.9. 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 versus a downwardly revised May level.

The prices paid index fell sharply for the second month and at 23.5 is down 43 points from the January high. 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 June May June '04 2004 2003 2002
General Activity Index -2.2 7.3 30.0 28.1 10.6 7.7
Prices Paid Index 23.5 30.9 50.8 51.3 16.8 12.3
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