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Economy in Brief

Philadelphia Fed Business Activity Index Bounces Back With Pricing Power
by Tom Moeller  May 16, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index fell to -5.2. That followed an unrevised 1.3 in April. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index and it fell to 45.8, its lowest level in six months. 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 shipments, new orders 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. In addition, the unfilled orders series fell slightly but inventories and delivery times improved, the latter indicating slower delivery speeds.      

Pricing power improved modestly m/m from the lowest level of the economic recovery. Just 18.1% of firms (still near the recovery low) paid higher prices while 11.2% 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 bounced back to 32.3. The readings for unfilled orders, inventories, the average workweek and delivery times led the broad-based improvement.

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 (%, SA) May Apr Mar May'12 2012 2011 2010
ISM-Adjusted General Business Conditions 45.8 46.1 49.3 48.3 47.7 51.9 50.7
General Business Conditions -5.2 1.3 2.0 -4.9 -0.2 7.7 12.1
  New Orders -7.9 -1.0 0.5 -0.6 -0.1 7.2 5.5
  Shipments -8.5 9.1 3.5 2.7 -1.4 9.9 8.3
  Unfilled Orders -9.3 -8.7 -6.4 -8.4 -6.5 -0.9 -3.0
  Delivery Time -6.0 -13.8 -7.5 -12.1 -9.1 -0.4 0.9
  Inventories 4.1 -22.2 0.0 3.4 -6.0 -0.3 -4.9
  Number of Employees -8.7 -6.8 2.7 -0.2 0.0 11.0 4.7
  Prices Paid 6.9 3.1 8.5 5.4 17.6 39.3 29.0
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