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Economy in Brief

Philadelphia Fed Index Improves To Highest Since 2007
by Tom Moeller November 19, 2009

The Philadelphia Federal Reserve Bank indicated that the November index of factory sector activity in the region continued to expand this month. Moreover, the index was unexpectedly strong at 16.7 and positive for the fourth consecutive month. 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.ยท Amongst the components new orders and shipments each improved to the highest since 2007. Also showing improvement was the employment index which rose to nearly break-even 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 the October decline and suggests that any turn towards inventory accumulation will be modest.

A decline in the prices paid index reversed all of its October increase. Nevertheless, the positive figure 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 deteriorated for the fifth straight month. The November index fell to a still-positive reading of 36.8 but that was well-off the recent high. Most of the index components, especially orders and shipments, were down sharply.

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

The exchange rate: what's in it for prices? from the Federal Reserve Bank of Philadelphia can be found here.

Philadelphia Fed (%) November October September November '08 2008 2007 2006
General Activity Index 16.7 11.5 14.1 -39.8 -21.3 5.0 8.0
  New Orders 14.8 6.2 3.3 -29.3 -14.7 6.9 9.0
  Number of Employees -0.5 -6.8 -14.3 -23.8 -8.7 6.8 9.0
Prices Paid Index 14.9 21.3  14.9  -26.6 36.4 26.3 36.7
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