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Economy in Brief

Philadelphia Fed Index Stable & Low, Prices Surged
by Tom Moeller July 18, 2008

The Philadelphia Federal Reserve Bank indicated that its July Index of General Business conditions in the manufacturing sector held roughly stable at -16.3. The prior month's index reading was a low -17.1 and a level of -15 had been expected for this month.

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 held at its June level. The reading of -12.1 was still, however, up off the absolute low of -18.8 in April. The shipments index showed the same pattern at -8.0.

The employment index, at -7.3, recently showed the same pattern as orders and shipments.Though a somewhat improved 16.9% of respondents expected to increase employment levels, 24.2% expected to decrease them.

The prices paid index again surged, to the highest level since early-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 for the second month, to 18.0. The recent levels of index were well below the full-year, 2007 reading of 24.7. Expectations for unfilled orders and delivery times fell sharply while new orders were unchanged and employment rose. The prices slipped after the June surge.

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

The Changing Nature of the U.S. Balance of Payments from the Federal Reserve Bank of New York can be found here.

Philadelphia Fed (%) July June July '07 2007 2006 2005
General Activity Index -16.3 -17.1 16.9 5.1 8.1 11.5
Prices Paid Index 75.6  69.3  25.8 26.4 36.6 40.1
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