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Economy in Brief

Philadelphia Fed Index Gains Slightly But Not Enough To Suggest Real Economic Improvement
by Tom Moeller   October 21, 2010

There was further loss of forward economic momentum last quarter. Moreover, the Philadelphia Federal Reserve Bank indicated that Q4 began with little improvement. The Bank's October index of regional factory sector activity improved just slightly to 1.0 from an average -1.1 for all of last quarter. The latest about matched expectations for a reading of 0.0. Nevertheless, it still suggested modest economic growth and compared to readings near -40.0 at the recession's weakest.

During the last ten years there has been an 76% 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 78% correlation with q/q growth in real GDP.

There was broad-based but modest improvement amongst the index components. The shipments index rose to 1.4 from -2.5 during Q3. New orders, however, showed less improvement but the average workweek rose to its highest since July. Behind the factory sector's general malaise has been continued liquidation of inventories. The October figure fell to -18.6 from -7.9 during Q3. These figures compare to modest accumulation in the spring. Through it all, factory sector payrolls have continued to grow modestly. The October index was near the levels of the prior several months. During the last ten years, there has been a 75% correlation between the index level and the three-month change in manufacturing sector payrolls.

The prices paid index also improved to its highest level since May but remained down from the 2008 high. Thirty-four percent of firms raised prices. During the last ten years there has been a 70% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 81% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months jumped to its highest level since April. Expectations for new orders, shipments and employment rose sharply along with expected capital expenditures.

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

Philadelphia Fed (%) October September August Oct. '09 2009 2008 2007
General Activity Index 1.0 -0.7 -7.7 11.8 -7.6 -21.4 5.0
New Orders -5.0 -8.1 -7.1 7.1 -9.7 -14.7 6.9
Shipments 1.4 -7.1 -4.5 6.2 -8.0 -9.2 9.9
Delivery Times -0.3 -4.1 -11.0 -9.5 -15.3 -10.6 -6.1
Number of Employees 2.4 1.8 -2.7 -9.5 -23.8 -8.8 6.8
Inventories -18.6 -16.7 -11.6 -31.9 -24.0 -16.7 -3.7
Prices Paid Index 31.5 9.8 11.8 19.6 -3.9 36.3 26.3
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