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Economy in Brief

Philadelphia Fed Index Lowest Since 1990
by Tom Moeller February 20, 2009

The latest figures from the Philadelphia Federal Reserve Bank show that the February Business Activity Index fell further to its lowest level since 1990 and that rivaled the lows of the series' forty year history. The bank reported that its February Index of General Business conditions in the manufacturing sector fell to -41.3 from 24.3 last month. A reading of -25 had been expected.

During the last ten years there has been a 70% 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 64% 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.

Amongst the sub-indexes, the new orders figure led this month's weakness with a decline to near the lowest since 1980. The shipments index fell to a record low.

The employment index fell another 6.8 points this month, and was down 17.2 points during the last two months, to a record low. Forty eight percent of respondents expected to reduce employment levels, a record, while only two 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 prices paid index nudged up month-to-month to -13.7 but just thirteen percent of respondents planned to raise prices. Thirty two percent expected to lower prices. During the last ten years there has been a 72% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 80% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months improved to its highest level since September. The expectations index for new orders led the gain but the expectations index for employment rose just marginally from the record low reached in January.

The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.

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

Philadelphia Fed (%) February January February  '08 2008 2007 2006
General Activity Index -41.3 -24.3 -22.6 -21.3 5.0 8.0
Prices Paid Index -13.7  -27.0  49.5 36.4 26.3 36.7
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