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Economy in Brief

Philadelphia Fed Business Activity Index Jumps
by Tom Moeller  March 17, 2011

More strength is evident in the Philadelphia Federal Reserve Bank's index of regional factory sector activity. The figure rose to 43.4 from an unrevised 35.9 in February. It was the highest level since January 1984 (no typo). It beat Consensus expectations for 30.0. 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.

Month-to-month improvement, however, was limited to a few components. The orders series nearly doubled m/m to 40.3, inventories rose to the highest since early-2006, and the employee workweek lengthened. Elsewhere, the component series were flat-to-down. The shipments series fell slightly after a 21.8 point February jump to its highest level since 2004. The employment figure also fell from its highest since April 1973. During the last ten years, there has been an 88% correlation between the index level and the monthly change in manufacturing sector payrolls.

The prices paid index fell from its highest level since July 2008. Sixty-four percent of firms paid higher prices while, again, 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 78% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months improved sharply to its highest since 1992 as expectations for new orders, employment and capital expenditures jumped. Expectations for prices slipped from its highest since 1988.

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 in activity. The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database. The Consensus expectations figure is available in AS1REPNA.

Philadelphia Fed (%) Mar Feb Jan Mar '10 2010 2009 2008
General Activity Index 43.4 35.9 19.3 20.1 12.1 -7.7 -21.5
   New Orders 40.3 23.7 23.6 12.4 5.4 -9.8 -14.9
   Shipments 34.9 35.2 13.4 15.6 8.2 -8.1 -9.2
   Unfilled Orders 14.9 14.9 8.7 -3.9 -3.0 -15.3 -17.6
   Delivery Times 8.5 10.0 2.3 8.1 0.9 -15.3 -10.6
   Inventories 12.0 2.1 6.8 -5.6 -5.1 -24.1 -16.7
   Number of Employees 18.2 23.6 17.6 9.3 4.6 -24.0 -8.8
   Inventories 12.0 2.1 6.8 -5.6 -5.1 -24.1 -16.7
   Prices Paid 63.8 67.2 54.3 38.2 28.5 -4.0 36.1
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