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Economy in Brief

Philadelphia Fed Index Improved Slightly
by Tom Moeller March 20, 2008

The Philadelphia Federal Reserve Bank reported that for March, it's Index of General Business Conditions in the manufacturing sector improved slightly to -17.4, about as expected, from -24.0 in February. The latest level was still near the lowest since the recession year 2001.

The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub indexes. The business conditions index reflects a separate survey question, not the sub indexes listed below.

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 modest rise in the overall index reflected slight improvement in the new orders and in the shipments sub indexes. Unfilled orders, delivery times and inventories continued to fall, as did the employment index which fell to its lowest since 2003. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.

The prices paid index rose sharply to its highest level since January 2005. 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 and recovered most of a sharp February decline, but the index still remained negative. Expectations for new orders, shipments and for the number of employees each recovered some of the sharp February declines.

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

  March February March '07 2007 2006 2005
General Activity Index -17.4 -24.0 0.2 5.1 8.1 11.5
Prices Paid Index 54.4  46.6  27.6 26.4 36.6 40.1
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