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Economy in Brief

Philadelphia Fed Index Remains Positive At Its Highest Level Since 2007
by Tom Moeller August 20, 2009

The Philadelphia Federal Reserve Bank indicated that its August index of factory sector activity in the region rose to its highest since November of 2007. The level of 4.2 compared to figures near -40.0 this past fall and winter. Consensus expectations had been for a slightly negative reading of -1.5 for this month.

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 70% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found here.

Amongst the components, new orders improved to 4.2 from -2.2 and the latest figure was the highest since 2007. A sharp rise in the inventory component to its highest since 2007 may indicate that the period of strong inventory decumulation reached its end. The latest figure of 0.3 compares to a low of -55.6 reached this past March. Also showing improvement was the employment index. It rose to a still negative -12.9 but that compared with a low of -52.0 during March. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.

Improved pricing power accompanied the gains in real activity. The prices paid index jumped to its first positive reading since last October. 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.

Expected business conditions in six months also have improved. The August index ticked up to 56.8 and recovered most of its July decline. The latest figure was still near its highest level since 2003. Most of the index components moved sideways at improved levels but the inventories series jumped sharply to new cycle high.

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

Philadelphia Fed (%) August July August '08 2008 2007 2006
General Activity Index 4.2 -7.5 -20.1 -21.3 5.0 8.0
  New Orders 4.2 -2.2 -15.2 -14.7 6.9 9.0
  Number of Employees -12.9 -25.3 -4.6 -8.7 6.8 9.0
Prices Paid Index 10.0  -3.5  53.0 36.4 26.3 36.7
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