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Economy in Brief

Philadelphia Fed Business Activity Index Lowest Since January
by Tom Moeller July 20, 2006

The Philadelphia Federal Reserve Bank's July Index of General Business Conditions in the manufacturing sector dropped to 6.0 from an unrevised 13.1 during June. The decline exceeded Consensus expectation for a drop to 12.4.

The July decline was to the lowest level since this past January.

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 lower index reflected declines in the sub indexes of new orders, shipments, unfilled orders and delivery times. Moving in the other direction, the employment index advanced to its highest level in three months. 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 rose moderately. 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 about doubled m/m in July but at 15.4 remained below the 2Q average. Expectations for employment fell m/m and the index also was below the 2Q average.

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

The minutes to the latest Federal Open Market Committee meeting can be found here.

Philadelphia Fed Business Outlook July June July '05 2005 2004 2003
General Activity Index 6.0 13.1 9.6 12.4 28.0 10.5
Prices Paid Index 50.3 48.7 31.8 43.5 51.2 16.8
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