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Economy in Brief

Philadelphia Fed Business Activity Index Moves Up
by Tom Moeller  March 15, 2012

The Philadelphia Federal Reserve Bank's General Business Conditions Index rose in March to its highest level since last April. The index rose to 12.5 from 10.2 in February and the figures have been positive for six consecutive months. The latest reading beat Consensus expectations for 11.5 and it is consistent with the improved Empire State index. However, Haver Analytics constructs an ISM-adjusted reading of the Philadelphia number. Its m/m slip to 50.3 is not consistent with the improvement in the adjusted Empire State figure. This happens frequently as there is not a 100% correlation between the two series. It has been 85% during the last ten years, so there's precedent for errant monthly movement. Nevertheless, both series indicate meaningful factory sector improvement versus last year. 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.

Improvement in the overall index was contained to the inventories and employment series. During the last ten years, there has been an 84% correlation between the employment index level and the monthly change in manufacturing sector payrolls. Other series deteriorated m/m including orders, shipments, unfilled orders, delivery times and prices paid. A lessened twenty-four percent of firms paid higher prices while six 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 slipped to its lowest since October led by lower and employment.

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 (%) Mar Feb Jan Mar'10 2011 2010 2009
ISM-Adjusted General Business Conditions 50.3 51.2 50.7 60.0 51.9 50.7 41.2
General Business Conditions 12.5 10.2 7.3 39.2 7.7 12.1 -7.6
  New Orders 3.3 11.7 6.9 36.1 7.1 5.5 -9.5
  Shipments 3.5 15.0 5.7 31.7 9.9 8.3 -7.9
  Unfilled Orders -11.0 2.2 -4.1 10.5 -0.9 -3.0 -15.2
  Delivery Time -7.1 1.5 -3.8 5.8 -0.4 0.9 -15.2
  Inventories 0.9 -12.9 -6.3 10.5 -0.4 -5.0 -24.0
  Number of Employees 6.8 1.1 11.6 16.5 11.0 4.6 -23.8
  Prices Paid 18.7 38.7 31.8 59.8 38.6 28.8 -3.6
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