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Economy in Brief

Philadelphia Fed Index Unexpectedly Steady
by Tom Moeller August 16, 2007

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector fell more than expected during August. The drop to 0.0 from 9.2 indicated that activity was "steady," but Consensus expectations had been for a reading that was roughly unchanged from July at 10.

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, shipments, unfilled orders and inventories all fell, the latter two into negative territory. The employment reading, however, improved to its best reading since 2004. 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 for the third consecutive month, back to its lowest level since January. 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 rose to its best level since late in 2004.

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

The latest Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia can be found here.

Philadelphia Fed Business Outlook August July   Aug. ‘06 2006 2005 2004
General Activity Index 0.0  9.2 12.6  8.1 11.5 28.1
Prices Paid Index 15.4  28.1  46.6  36.6 40.1 51.2
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