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Economy in Brief

Philadelphia Fed Index Improves To Highest Since 2005
by Tom Moeller  December 16, 2010

The Philadelphia Federal Reserve Bank indicated that its December index of regional factory sector activity improved further to 24.3, its highest level since April 2005. The latest easily outpaced Consensus expectations for a m/m pullback to 14.1 and it compares 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 mixed improvement amongst the index components. New orders, delivery times, the workweek and inventories (slower delivery speeds) each firmed although shipments, inventories and employment each fell. The latter's decline was from it's highest since August 2007. 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 sharply to its highest level since July 2008. Fifty-two percent of firms paid higher prices while just 0.7% paid lower. 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 rose further to its highest level since March. Expectations for new orders, shipments, delivery times, prices paid, employment and capital expenditures rose.

The survey panel consists of 150 manufacturing companies in Federal Reserve District III (consisting of southeastern PA, southern NJ and
Delaware.) The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.

Philadelphia Fed (%) Dec Nov Oct Dec'09 2010 2009 2008
General Activity Index 24.3 22.5 1.0 22.5 12.1 -7.6 -21.4
   New Orders 14.6 10.4 -5.0 8.3 5.4 -9.7 -14.7
   Shipments 7.3 16.8 1.4 14.9 8.3 -8.0 -9.2
   Delivery Times 8.5 2.1 -0.3 4.1 0.9 -15.3 -10.6
   Number of Employees 5.1 13.3 2.4 4.5 4.6 -23.8 -8.8
   Inventories -2.0 -5.9 -18.6 -5.7 -5.1 -24.0 -16.7
   Prices Paid Index 51.2 34.0 31.5 36.6 28.7 -3.9 36.3
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