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Economy in Brief

Philadelphia Fed Index Improved Slightly But Still Low
by Tom Moeller January 15, 2009

The Philadelphia Federal Reserve Bank indicated that its January Index of General Business conditions in the manufacturing sector rose slightly from the recent monthly lows. However, the index at -24.3 this month was still only slightly better than the lows of the prior two recessions. A weaker reading of -35 had been expected for this month.

During the last ten years there has been a 71% 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 54% correlation with q/q growth in real GDP.

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.

The employment index weakened sharply to the lowest level since the recession of 1975. A record forty eight percent of respondents expected to reduce employment levels while only nine percent expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.

The new orders index ticked up slightly to a reading of -22.3 and the shipments index also recovered all of its sharp December decline.

The prices paid index fell, for the third month, to a record low. During the last ten years there has been a 69% 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. Just eleven percent of respondents increased prices this month versus thirty eight percent that lowered them.

The separate index of expected business conditions in six months rose slightly to its highest level since September. The expectations index for new orders led the improvement but the expectations index for employment fell to a record low.

The Philadelphia Fed figures can be found in Haver's SURVEYS database.

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

The Fed, Liquidity, and Credit Allocation from the Federal Reserve Bank of St. Louis can be found here.

Philadelphia Fed (%) January December January  '08 2008 2007 2006
General Activity Index -24.3 -36.1 -12.0 -21.3 5.0 8.0
Prices Paid Index -27.0  -25.5  49.8 36.4 26.3 36.7
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