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Economy in Brief

Philadelphia Fed Business Activity Index Turns Negative
by Tom Moeller  June 16, 2011

Like yesterday's Empire State Index, the Philadelphia Federal Reserve Bank's index of regional factory sector activity turned negative for June. It dropped to -7.7 from an unrevised 3.9 in May. It was the first negative reading since September and the lowest read since July 2009. The figure was well short of Consensus expectations for positive 7.0. During the last ten years, there has been a 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 occurred in all of the component series. The largest m/m deterioration came as prices paid weakened, delivery times sped up and employment growth went to nil. Orders fell sharply to its lowest since June 2009, the last month of the recession. During the last ten years, there has been an 86% correlation between the employment index level and the monthly change in manufacturing sector payrolls.

The prices paid index fell to its lowest level since September. Thirty-seven percent of firms paid higher prices while 10% paid less. During the last ten years there has been a 72% 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 to 2.5, its lowest since December, 2008 as expectations for new orders, shipments, unfilled orders, delivery times and employment cratered. Expectations for prices fell to its lowest since September.

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 (%) June May April June'10 2010 2009 2008
General Activity Index -7.7 3.9 18.5 9.2 12.1 -7.7 -21.5
  New Orders -7.6 5.4 18.8 5.8 5.4 -9.8 -14.9
  Shipments 4.0 6.5 29.1 12.6 8.2 -8.1 -9.2
  Unfilled Orders -16.3 -7.8 12.9 -1.3 -3.0 -15.3 -17.6
  Delivery Time -20.5 -2.3 11.2 3.5 0.9 -15.3 -10.6
  Inventories -8.5 -5.4 1.7 -0.3 -5.1 -24.1 -16.7
  Number of Employees 4.1 22.1 12.3 -1.0 4.6 -24.0 -8.8
  Prices Paid 26.8 48.3 57.1 12.3 28.5 -4.0 36.1
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