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Economy in Brief

Philadelphia Fed Business Activity Index Falls Sharply
by Tom Moeller  April 21, 2011

The rate of improvement in economic conditions fell sharply this month according to the Philadelphia Federal Reserve Bank's index of regional factory sector activity. The figure dropped to 18.5 from an unrevised 43.4 in March. The decline more-than-reversed the March improvement and the level was the lowest since November. It fell well short of Consensus expectations for 36.9. 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 deterioration was broad-based amongst the component series, but nowhere greater than for new orders. This series roughly halved versus March to 18.8. The inventories series fell sharply to its lowest since December while shipments fell to its lowest since January. It remained, however, near its six-year high. The employment figure also fell m/m but remained near the highest in four years. 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 to its lowest level since January. Fifty-nine percent of firms paid higher prices while 1.4% 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.

The separate index of expected business conditions in six months also fell sharply as expectations for new orders were at the lowest level since September. Shipments also fell but employment rose. Expectations for prices fell to its lowest since November.

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 (%) Apr Mar Feb Apr '10 2010 2009 2008
General Activity Index 18.5 43.4 35.9 20.3 12.1 -7.7 -21.5
   New Orders 18.8 40.3 23.7 14.0 5.4 -9.8 -14.9
   Shipments 29.1 34.9 35.2 10.9 8.2 -8.1 -9.2
   Unfilled Orders 12.9 14.9 14.9 -1.1 -3.0 -15.3 -17.6
   Delivery Times 11.2 8.5 10.0 3.8 0.9 -15.3 -10.6
   Inventories 1.7 12.0 2.1 1.4 -5.1 -24.1 -16.7
   Number of Employees 12.3 18.2 23.6 7.4 4.6 -24.0 -8.8
   Prices Paid 57.1 63.8 67.2 39.2 28.5 -4.0 36.1
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