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Economy in Brief

Philadelphia Fed Business Activity Index Gains
by Tom Moeller  February 16, 2012

The Philadelphia Federal Reserve Bank's General Business Conditions Index rose in February indicating expansion and built on its January rise. The Index of General Business Conditions rose to 10.2 from 7.3 in January. The figures have been positive for five consecutive months and improved from the Q3 average of -9.7. The latest figure was better than Consensus expectations for 8.8. Haver Analytics constructs an ISM-adjusted reading of the Philadelphia number and with a rise to 51.2, it recovered its January dip. During the last ten years there's been a 73.0% 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 76% correlation with q/q growth in real GDP.

Changes amongst the component series were mostly positive m/m including new orders, shipments, unfilled orders and delivery times. The employment figure, however, fell to its lowest in six months. During the last ten years, there has been an 84% correlation between the employment index level and the monthly change in manufacturing sector payrolls. The prices paid index also rose to its highest level in nine months. Forty-two percent of firms paid higher prices while four percent paid less. 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 fell sharply to its lowest since October led by lower new orders, shipments, unfilled orders and prices paid. The employment series rose to its highest in three months.

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.

The minutes to the latest FOMC meeting can be found here.

Philadelphia Fed (%) Feb Jan Dec Feb'10 2011 2010 2009
ISM-Adjusted General Business Conditions 51.2 50.7 51.2 56.5 51.9 50.7 41.2
General Business Conditions 10.2 7.3 6.8 29.8 7.7 12.1 -7.6
  New Orders 11.7 6.9 10.7 20.8 7.1 5.5 -9.5
  Shipments 15.0 5.7 9.1 29.2 9.9 8.3 -7.9
  Unfilled Orders 2.2 -4.1 5.1 13.0 -0.9 -3.0 -15.2
  Delivery Time 1.5 -3.8 1.3 7.8 -0.4 0.9 -15.2
  Inventories -12.9 -6.3 -11.5 -0.6 -0.4 -5.0 -24.0
  Number of Employees 1.1 11.6 11.5 19.5 11.0 4.6 -23.8
  Prices Paid 38.7 31.8 30.4 63.2 38.6 28.8 -3.6
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