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Economy in Brief

Philadelphia Fed Index Recovered, Expectations Up Sharply
by Tom Moeller May 15, 2008

The May Index of General Business conditions in the manufacturing sector, from the Philadelphia Federal Reserve Bank, rose to -15.6 and reversed all of its deterioration in April. The latest was the highest level this year.

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 new orders sub-index improved the most during May while shipments, inventories and employment also rose.

The prices paid index advanced 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 again rose sharply this month to a level of 28.2 from 13.7 in April. Expectations for each sub-component rose sharply and the overall series was at it's highest since last October.

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

Philadelphia Fed (%) May April May '07 2007 2006 2005
General Activity Index -15.6 -24.9 4.1 5.1 8.1 11.5
Prices Paid Index 53.8  51.6  29.6 26.4 36.6 40.1
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