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Economy in Brief

Philadelphia Fed Business Activity Index Crashes Along With Outlook
by Tom Moeller  August 18, 2011

The Philadelphia Federal Reserve Bank's index of regional factory sector plunged this month. Today's Philadelphia Fed General Activity index dropped to -30.7 from an unrevised 3.2 in July. The figure was well short of Consensus expectations for 4.2. Haver Analytics constructs an ISM-adjusted reading of the Philadelphia number and it plunged to 42.1 from 51.7 in July. During the last ten years there's been a 75% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There's also been a 75% correlation with q/q growth in real GDP.

Month-to-month deterioration occurred in each of the Fed's component series with new orders and shipments falling the most. The employment series turned negative for the first time in twelve months. 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. Twenty-six percent of firms paid higher prices while 13% paid less, the highest in two years. 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 plunged to its lowest since November, 2008. Expectations for inventories, the workweek and capital expenditures fell precipitously.

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 (%) Aug Jul Jun Aug'10 2010 2009 2008
ISM Adjusted General Activity Index 42.1 51.7 45.5 44.7 50.7 41.2 43.2
General Activity Index -30.7 3.2 -7.7 -5.6 12.1 -7.7 -21.5
  New Orders -26.8 0.1 -7.6 -7.5 5.4 -9.8 -14.9
  Shipments -13.9 4.3 4.0 -3.4 8.2 -8.1 -9.2
  Unfilled Orders -20.9 -16.3 -16.3 -7.7 -3.0 -15.3 -17.6
  Delivery Time -18.1 6.4 -20.5 -8.9 0.9 -15.3 -10.6
  Inventories -9.8 1.4 -8.5 -9.9 -5.1 -24.1 -16.7
  Number of Employees -5.2 8.9 4.1 -3.9 4.6 -24.0 -8.8
  Prices Paid 12.8 25.1 26.8 11.4 28.5 -4.0 36.1
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