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Economy in Brief

Philadelphia Fed Business Activity Up
by Tom Moeller May 19, 2006

The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline to 12.5.

During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.

The index reflected improvement in delivery times and inventories. However, declines in other sub indexes were broad based; new orders, shipments and employment each fell to the lowest levels since last Summer. During the last ten years there has been a 75% 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 prices paid index surged to the highest level since last September. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months fell and reversed roughly half of the improvement in April. Expectations for employment fell sharply to the lowest level since August 2002..

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

The rise in the Philly Fed index ran counter to the m/m improvement, reported Monday, in the May Empire State Manufacturing index of general business conditions. The Richmond Fed will report its May Mfg. Survey index next week. The reading will follow two months of sharp improvement, notably in orders, shipments and jobs and the figures will be available in the Haver SURVEYS database.

During the last ten years there has been a 57% correlation between the Richmond survey index level and the change in factory sector industrial production, nationally. The latest Richmond Fed Mfg. Survey is available here.

The Richmond Fed also publishes indexes of conditions in the Service Sector and the latest release is available here.

Philadelphia Fed Business Outlook May April May '05 2005 2004 2003
General Activity Index 14.4 13.2 10.3 12.4 28.0 10.5
Prices Paid Index 55.3 29.0 32.0 43.5 51.2 16.8
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