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Economy in Brief

Philadelphia Fed Business Activity Index Improved
by Tom Moeller February 17, 2006

The Philadelphia Fed's February Index of General Business Conditions in the manufacturing sector more than reversed its recent weakness and jumped 12.1 points to 15.4, the highest level since last August. Consensus expectations had been for more moderate improvement to 9.1.

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 unfilled orders improved markedly to the highest level since 20904. New orders also rose to 12.5, its highest since October and shipments surged to 22.5the highest level since last April. The index covering the number of employees slipped marginally to 11.3. 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, and most of the sub indexes improved this month versus December.

The separate index of expected business conditions in six months recovered about half of the prior month's decline. Expectations for employment also moved back into positive territory.

The prices paid index fell sharply as did the index of future prices. 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 Feb Jan Feb '05 2005 2004 2003
General Activity Index 15.4 3.3 22.1 12.4 28.0 10.5
Prices Paid Index 30.5 44.9 43.4 43.5 51.2 16.8
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