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Economy in Brief

by Tom Moeller Philadelphia Fed Index Fell Further Than Expected July 20, 2007

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector fell during July to 9.2, half the level in June. Consensus expectations had been for a more moderate decline to 14 but the latest reading still indicates growth in the factory sector, just at a slower rate.

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 new orders and employment fell but remained positive. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.

The indexes for shipments, unfilled orders and inventories each rose.

The business conditions index reflects a separate survey question, not the sub indexes.

The prices paid index fell for the second consecutive month. 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 doubled its June level and rose to near the highest level since early last year.

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

Stable Interest Rates Follow Stable Prices from the Federal Reserve Bank of St. Louis is available here.

Philadelphia Fed Business Outlook July June July ‘06 2006 2005 2004
General Activity Index 9.2 18.0 6.5 8.1 11.5 28.1
Prices Paid Index 28.1 29.7 49.5 36.6 40.1 51.2
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