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Economy in Brief

Philadelphia Fed Index Indicates A Slowing Rate Of Decline In Economic Activity
by Tom Moeller May 21, 2009

The Philadelphia Federal Reserve Bank indicated that economic activity in the region continued to contract during May but that the rate of decline slowed. The Index of General Business conditions in the manufacturing sector came in at -22.6 which was the least negative reading since last September. The latest figure, nonetheless, was weaker than an expected reading of -18.

Though the latest figure remained negative it indicates that the decline in economic activity is moderating. During the last ten years there has been a 77% 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 68% 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 shipments, inventories and unfilled orders rose. The new orders index fell slightly, however, and has been moving erratically sideways this year. Showing much improvement was the employment index which rose significantly to the highest level since last November. A reduced thirty-four percent of respondents expected to lower employment levels and an improved eight 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 remained low at -22.8. Only one percent of respondents planned to raise prices while twenty-four percent expected to lower them. During the last ten years there has been a 74% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 83% 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 2004. The expectations index for new orders, shipments and employment surged.

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 (%) May April May  '08 2008 2007 2006
General Activity Index -22.6 -24.4 -16.3 -21.3 5.0 8.0
Prices Paid Index -22.8  -31.5  52.2 36.4 26.3 36.7
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