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Economy in Brief

Philadelphia Fed Business Activity Up a Bit 
by Tom Moeller December 16, 2005

The December Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose slightly to 12.6 from 11.5 the prior month. Consensus expectations had been for 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 index measuring new orders fell sharply as did the shipments index though both remained positive. The index covering the number of employees and delivery times also fell. These declines were offset by increases in unfilled orders and inventories. 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 a sharp 10 points to 39.0 and was at its best level in a year. Expectations for employment also jumped to the highest level since January but capital spending intentions fell.

The prices paid index fell for the second month to a still high reading of 49.0. 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. How Well Do Diffusion Indexes Capture Business Cycles? A Spectral Analysis from the Federal Reserve Bank of Richmond is available here.

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

Philadelphia Fed Business Outlook Dec Nov 2005 2004 2003
General Activity Index 12.6 11.5 12.5 28.1 10.6
Prices Paid Index 49.0 56.8 43.6 51.3 16.8
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