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Economy in Brief

Philadelphia Fed Business Activity Off Sharply 
by Tom Moeller January 19, 2006

The Index of General Business Conditions in the manufacturing sector for January from the Philadelphia Fed fell sharply to 3.3 from 10.9 in December. Consensus expectations had been for improvement to 13.1. It was the lowest level for the index since last 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 business conditions index reflects a separate survey question, not the sub indexes, and most of the sub indexes improved this month versus December.

The sub index measuring new orders rose to 11.1, its highest since October, from 5.8. Shipments also rose to 18.6 from 9.4 while the index covering the number of employees advanced to 11.7 from 7.9. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.

The separate index of expected business conditions in six months fell moderately, reversing most of the revised rise in December. Expectations for employment also backpedaled after sharp improvement during December.

The prices paid index fell moderately and the index of future prices fell to its lowest level since last June. 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 latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found here.

Philadelphia Fed Business Outlook Jan Dec Jan '05 2005 2004 2003
General Activity Index 3.3 10.9 11.0 12.4 28.0 10.5
Prices Paid Index 44.9 47.1 64.1 43.5 51.2 16.8
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