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Economy in Brief

Philadelphia Fed Index Fell Unexpectedly
by Tom Moeller December 21, 2006

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector fell and was negative for the third month in the last four. The December reading of -4.3 was the lowest since early 2003 and compared to Consensus expectations for just a slight decline to +3.5.

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 43% correlation with q/q growth in real GDP.

The sub indexes for unfilled orders, delivery times and inventories accounted for much of the total's decline. New orders improved to a less negative reading and shipments surged. The employment index also improved. 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 to the lowest level since March. 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 nearly halved m/m and fell to the lowest level since August.

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

Philadelphia Fed Business Outlook December November Dec. '05 2006 2005 2004
General Activity Index -4.3 5.1 10.9 8.0 12.4 28.0
Prices Paid Index 20.6 26.7 47.1 36.6 43.5 51.2
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