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Economy in Brief

Philadelphia Fed Business Activity Index Improves
by Tom Moeller  December 16, 2011

The Philadelphia Federal Reserve Bank's General Business Conditions Index rose in December and remained in positive territory. The Index of General Business Conditions rose to 10.3 from an unrevised 3.6 in November. The figures have been positive for three consecutive months and improved from the Q3 average of -15.0. The latest figure was higher than Consensus expectations for 5.0. Haver Analytics constructs an ISM-Adjusted reading of the Philadelphia number and it slipped to 50.4 from 52.8 in November. During the last ten years there's been a 70% 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 68% correlation with q/q growth in real GDP.

The performance amongst the component series was mixed. New orders, unfilled orders and delivery times rose, but shipments and inventories fell. The employment series also fell from its highest in six 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 rose to its highest level since May. Forty-one percent of firms paid higher prices while seven percent 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 rose further to the highest level since March led by new orders, delivery times, inventories & prices paid.

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 (%) Dec Nov Oct Dec'10 2011 2010 2009
ISM-Adjusted General Business Conditions 50.4 52.8 51.2 51.3 52.0 50.7 41.2
General Business Conditions 10.3 3.6 8.7 20.8 7.6 12.1 -7.7
  New Orders 9.7 1.3 7.8 10.6 7.1 5.4 -9.8
  Shipments 6.7 7.3 13.6 5.2 9.9 8.2 -8.1
  Unfilled Orders 7.2 -1.5 3.4 4.0 -0.9 -3.0 -15.3
  Delivery Time 3.0 2.5 -0.5 7.0 -0.4 0.9 -15.3
  Inventories -14.9 6.6 -7.7 -5.9 -0.5 -5.1 -24.1
  Number of Employees 10.7 12.0 1.4 4.3 11.0 4.6 -24.0
  Prices Paid 33.7 22.8 20.0 47.9 37.9 28.5 -4.0
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