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Economy in Brief

Philadelphia Fed Index Lowest Since 2001
by Tom Moeller February 21, 2008

The Philadelphia Federal Reserve Bank reported that it's Index of General Business Conditions in the manufacturing sector fell to -24.0 this month from -20.9 in January. The latest level was the lowest since the recession year 2001.

The index is a diffusion index for each component or series. It reflects the increase in activity reported less the decrease.

During the last ten years there has been a 59% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 42% correlation with q/q growth in real GDP.

The decline in the overall index represented broad based declines in each of the sub indexes except new orders and the number of employees which ticked up. 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 also fell slightly after strong up moves during the prior five months. 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 fell sharply to the lowest reading since 1990. Expectations for new orders, shipments and for the number of employees fell sharply.

Are Shocks to the Terms of Trade, Shocks to Productivity? from the Federal Reserve Bank of Minneapolis can be found here.

  February January Feb. '07 2007 2006 2005
General Activity Index -24.0 -20.9 0.3 5.1 8.1 11.5
Prices Paid Index 46.6  49.8  18.8 26.4 36.6 40.1
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