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Economy in Brief

Philadelphia Fed Activity Index Slumps
by Tom Moeller  June 21, 2012

Another sign of economic weakening came today from the Philadelphia Federal Reserve Bank. Its General Business Conditions Index fell sharply this month to -16.6 from an unrevised -5.8 in May and compared to an expected 0.5. The figure was the second consecutive negative reading and the most negative since August. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index. It slumped more than five points to 43.1, its lowest reading since July 2009.

Declines in the component series were all inclusive except for the number of employees, which rose slightly to 1.8 but remained well below the April high of 17.9. During the last ten years there has been an 83% correlation between the employment index and the m/m change in factory sector payrolls. The sharpest component series declines were logged by shipments, orders, inventories and the length of the workweek. Lesser declines were unfilled orders and delivery times.

Pricing power evaporated as the prices paid index dropped sharply into negative territory to its lowest level 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 ticked up to 19.5 from its lowest since August of last year. New orders, shipments, employment and capital expenditures led the rise.

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 (%) Jun May Apr Jun'11 2011 2010 2009
ISM-Adjusted General Business Conditions 43.1 48.6 52.4 45.8 51.9 50.7 41.2
General Business Conditions -16.6 -5.8 8.5 -4.1 7.7 12.1 -7.6
  New Orders -18.8 -1.2 2.7 -6.5 7.1 5.5 -9.5
  Shipments -16.6 3.5 2.8 2.8 9.9 8.3 -7.9
  Unfilled Orders -16.3 -9.4 3.2 -13.3 -0.9 -3.0 -15.2
  Delivery Time -15.5 -14.0 -3.4 -14.9 -0.4 0.9 -15.2
  Inventories -8.7 4.5 8.2 -10.4 -0.4 -5.0 -24.0
  Number of Employees 1.8 -1.3 17.9 3.1 11.0 4.6 -23.8
  Prices Paid -2.8 5.0 22.5 32.8 38.6 28.8 -3.6
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