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Economy in Brief

Philadelphia Fed Index Slips M/M But Remains Near High
by Tom Moeller  January 20, 2011

The Philadelphia Federal Reserve Bank indicated that its January index of regional factory sector activity slipped to 19.3 from a downwardly revised 20.8 in December. Nevertheless, it remained near its highest level since April 2005. The latest fell shy of Consensus expectations for 20.0 but  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.

Despite the decline in the general activity index, there was widespread improvement amongst the index details. New orders, inventories and employment showed the greatest improvement. During the last ten years, there has been a 75% correlation between the index level and the three-month change in manufacturing sector payrolls. Shipments and unfilled orders showed lesser gains while delivery times and the average workweek fell.

The prices paid index also improved sharply to its highest level since July 2008. Fifty-four percent of firms paid higher prices while none 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 also fell m/m from its highest level since March. Expectations for new orders led the decline but shipments, employment and capital expenditures also fell. Expectations for prices rose to its highest since 2005.

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 (%) Jan Dec Nov Jan '10 2010 2009 2008
General Activity Index 19.3 20.8 18.1 16.3 12.1 -7.7 -21.5
   New Orders 23.6 10.6 8.0 8.0 5.4 -9.8 -14.9
   Shipments 13.4 5.2 14.4 11.9 8.2 -8.1 -9.2
   Delivery Times 2.3 7.0 2.0 6.0 0.9 -15.3 -10.6
   Number of Employees 17.6 4.3 11.7 6.2 4.6 -24.0 -8.8
   Inventories 6.8 -5.9 -5.5 -2.1 -5.1 -24.1 -16.7
   Prices Paid Index 54.3 47.9 33.7 33.9 28.5 -4.0 36.1
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