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Economy in Brief

Philadelphia Fed Index Negative
by Tom Moeller September 21, 2006

The Philadelphia Federal Reserve Bank's September Index of General Business Conditions in the manufacturing sector was negative for the first month since April 2003. The figure fell to -0.4 from an unrevised, very firm 18.5 in August. Consensus expectations had been for a slight decline to 14.8.

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.

With the exceptions of inventories and employment, each of the sub indexes turned negative in September. The employment index, in fact, rose back into the middle of its range of the last year. 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 dropped further m/m to the lowest level since April. 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 also was negative for the first month since January 2001, though expectations for orders, shipments and employment remained positive.

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

Philadelphia Fed Business Outlook September August Sept '05 2005 2004 2003
General Activity Index -0.4 18.5 7.0 12.4 28.0 10.5
Prices Paid Index 38.1 45.3 50.6 43.5 51.2 16.8
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