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Economy in Brief

Philadelphia Fed Activity Index Unexpectedly Turns Negative
by Tom Moeller  May 17, 2012

The Philadelphia Federal Reserve Bank's General Business Conditions Index fell sharply this month and into negative territory. The decline to -5.8 for May from an unrevised 8.5 compared to an expected gain to 10.3. The figure was the first negative since September of last year. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index and it fell to a below break-even of 48.6.

Declines in the component series were widespread last month including drops in new orders, unfilled orders, delivery times, inventories and employment. The latter's negative 1.3 was the first below zero since June 2010. During the last ten years there has been an 83% correlation between the employment figure and the m/m change in factory payrolls.

The prices paid index also fell sharply to 5.0 from 22.5. This latest reading was the lowest since July 2009. 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 also fell sharply to its lowest since August. The decline was led by inventories and employment as well as shipments and new orders. The prices paid series improved.

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.

Accounting for the Non-Employment of U.S. Men, 1968-2010 from the Federal Reserve Bank of Richmond is available here.

Philadelphia Fed (%) May Apr Mar May'11 2011 2010 2009
ISM-Adjusted General Business Conditions 48.6 52.4 50.3 52.4 51.9 50.7 41.2
General Business Conditions -5.8 8.5 12.5 3.2 7.7 12.1 -7.6
  New Orders -1.2 2.7 3.3 6.6 7.1 5.5 -9.5
  Shipments 3.5 2.8 3.5 6.3 9.9 8.3 -7.9
  Unfilled Orders -9.4 3.2 -11.0 -5.7 -0.9 -3.0 -15.2
  Delivery Time -14.0 -3.4 -7.1 -2.0 -0.4 0.9 -15.2
  Inventories 4.5 8.2 0.9 -4.1 -0.4 -5.0 -24.0
  Number of Employees -1.3 17.9 6.8 21.1 11.0 4.6 -23.8
  Prices Paid 5.0 22.5 18.7 46.4 38.6 28.8 -3.6
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