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Economy in Brief

Philadelphia Fed Index Slipped, Prices Surged
by Tom Moeller June 19, 2008

The Index of General Business conditions in the manufacturing sector for June, from the Philadelphia Federal Reserve Bank, slipped to -17.1 following improvement during May. A level of -10 had been expected.

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.

During the last ten years there has been a 61% 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 43% correlation with q/q growth in real GDP.

The new orders sub-index deteriorated sharply and lost half of the improvement during May. Shipments also fell sharply as did the employment index.

The prices paid index surged to the highest level since 1980. During the last ten years there has been a 67% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months fell in June to 21.2 from 28.2 in May. The level of index was still below the full-year, 2007 reading of 24.7. Expectations for the production, shipments and employment indexes all fell. Prices rose sharply.

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

Liquidity Crises from the Federal Reserve Bank of Philadelphia is available here.

The Evolution of the World Income Distribution*, also from the Federal Reserve Bank of Philadelphia, can be found here.

Philadelphia Fed (%) June May June '07 2007 2006 2005
General Activity Index -17.1 -15.6 17.7 5.1 8.1 11.5
Prices Paid Index 69.3  53.8  27.4 26.4 36.6 40.1
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