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Economy in Brief

Philadelphia Fed Index Slips Yet Still Indicates Positive Growth
by Tom Moeller October 15, 2009

October index of factory sector activity from the Philadelphia Federal Reserve Bank indicated that activity in the region continued to grow this month. The index slipped as expected to a positive 11.5 from 14.1 in September and remained near its highest since mid-2007. The latest level compared to figures near -40.0 this past fall and winter.

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 6.2 from 3.3 and the latest figure was the highest since 2007. Also showing improvement was the employment index. It rose to a still negative -6.8 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. The inventory component reversed its earlier improvement and suggests that any turn towards inventory accumulation will be modest.

Improved pricing power accompanied the gains in real activity. The prices paid index rose to its highest level since last September and compares to negative readings this past winter and spring. 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 fell this month. The October index fell to a still-positive reading of 39.8 but that was down from the recent high. Most of the index components fell except anticipated capital expenditures.· The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database. 

Philadelphia Fed (%) October September October '08 2008 2007 2006
General Activity Index 11.5 14.1 -38.7 -21.3 5.0 8.0
  New Orders 6.2 3.3 -30.6 -14.7 6.9 9.0
  Number of Employees -6.8 -14.3 -19.2 -8.7 6.8 9.0
Prices Paid Index 21.3  14.9  10.2 36.4 26.3 36.7
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