The Index of General Business Conditions in the manufacturing sector in August from the Philadelphia Fed added to the prior month's gain and rose to 17.5, the highest level since April. Consensus expectations had been for a lesser improvement to 14.0.

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 sub indexes measuring new orders and shipments led with gains to the highest levels since April. The index covering the number of employees also rose. 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 jumped to its best level this year led by expectations of increased hiring.

The prices paid index slipped and gave back a piece of the moderate improvement in July. 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.