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Economy in Brief

Philadelphia Fed Index Remained Negative
by Tom Moeller October 19, 2006

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector remained negative in October. The figure slipped to -0.7 from an unrevised -0.4 last month and disappointed Consensus expectations for improvement to 6.5.

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.

Sharp deterioration into negative territory by the indexes for unfilled orders, delivery times and the average workweek presumably pulled the overall index down.

The sub indexes for orders, shipments and inventories each recovered sharply back into positive territory. The employment index fell moderately m/m but remained in the positive 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 fell 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 improved sharply to the highest level since May.

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

Philadelphia Fed Business Outlook October September Oct. '05 2005 2004 2003
General Activity Index -0.7 -0.4 13.1 12.4 28.0 10.5
Prices Paid Index 32.0 38.1 66.7 43.5 51.2 16.8
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