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Economy in Brief

Philadelphia Fed Business Activity Dipped
by Tom Moeller June 16, 2006

The Index of General Business Conditions in the manufacturing sector during June from the Philadelphia Fed dipped to 13.1 from an unrevised 14.4 during May. The decline was less than the Consensus expectation for a drop to 11.5.

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 declines in the sub indexes of delivery time and inventories. New orders and shipments recovered all or most of the sharp declines in May while employment recovered moderately. 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 gave back a piece of the May surge but remained quite elevated . 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 sharply to its lowest level since January of 2001 although expectations for employment improved.

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

The Effects of Globalization on Inflation and Their Implications for Monetary Policy is yesterday's speech by Federal Reserve Board Governor Donald L. Kohn and it is available herel

Philadelphia Fed Business Outlook June May June '05 2005 2004 2003
General Activity Index 13.1 14.4 0.0 12.4 28.0 10.5
Prices Paid Index 48.7 55.3 28.2 43.5 51.2 16.8
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