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Economy in Brief

Philadelphia Fed Business Activity Index Slips; Pricing Power Evaporates
by Tom Moeller  April 15, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index fell during April to 1.3. That followed an unrevised March improvement to 2.0. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index and it fell to 46.1, its lowest level since November. During the last ten years there has been an 85% correlation between the adjusted Philadelphia Fed index and the ISM Manufacturing Composite index.

Deterioration amongst the component series was broad-based, notably inventories, delivery times and employment. During the last ten years, there has been an 80% correlation between the employment index and the m/m change in factory sector payrolls. While the new orders series also fell m/m, the shipments component rose to its highest level this year.     

Pricing power deteriorated to the lowest level of the economic recovery. Just 13.6% (nearly the recovery low) of firms paid higher prices while an increased 10.5% paid less. During the last ten years there has been a 71% correlation between the prices paid index and three-month growth in the intermediate goods PPI.

The separate index of expected business conditions in six months deteriorated sharply to 19.5, its lowest level since November. The readings for shipments, unfilled orders, inventories and prices paid fell sharply. The average workweek rose while employment was unchanged.

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

Monetary Policy: Many Targets, Many Instruments. Where Do We Stand? is the title of Tuesday's panel discussion at the IMF including Fed Vice Chair Janet L. Yellen and it can be found here here.

Philadelphia Fed (%, SA) Apr Mar Feb Apr'12 2012 2011 2010
ISM-Adjusted General Business Conditions 46.1 49.3 47.7 51.1 47.7 51.9 50.7
General Business Conditions 1.3 2.0 -12.5 6.5 -0.2 7.7 12.1
  New Orders -1.0 0.5 -7.8 -0.8 -0.1 7.2 5.5
  Shipments 9.1 3.5 2.4 0.5 -1.4 9.9 8.3
  Unfilled Orders -8.7 -6.4 -11.2 0.3 -6.5 -0.9 -3.0
  Delivery Time -13.8 -7.5 0.2 -5.0 -9.1 -0.4 0.9
  Inventories -22.2 0.0 -10.0 4.1 -6.0 -0.3 -4.9
  Number of Employees -6.8 2.7 0.9 13.4 0.0 11.0 4.7
  Prices Paid 3.1 8.5 8.9 16.0 17.6 39.3 29.0
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