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Economy in Brief

Philadelphia Fed Business Conditions Index Improves To Two-Year High
by Tom Moeller  July 18, 2013

Economic momentum is picking up. The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for July jumped to 19.8. This figure was the highest level since March 2011 and it followed an unrevised 12.5 in June. Less of a rise to 7.8 had been expected. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index. It slipped to 49.4 but remained the highest level since December. During the last ten years there has been a 71% correlation between the adjusted Philadelphia Fed index and real GDP growth.

Improvement in the Composite Index was driven by a higher employment figure of 7.7, the first positive number since March. During the last ten year there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. The shipments series also rose to its highest level since December, the unfilled orders increased to its best level in six months and the vendor deliveries series turned positive, indicating slower delivery speeds. Offsetting these improvements was a sharp drop in the new orders index and a lower inventories reading. 

Pricing power deteriorated slightly after its sharp June improvement. Twenty nine percent of firms paid higher prices while eight percent 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 jumped to 44.9, the highest level since March 2011. The employment figure surged to its highest reading since 1984 (no typo). The new orders also firmed to its highest level since 2003 while most other series improved significantly.

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 ISM adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes, new orders, production, employment, supplier deliveries and inventories with equal weights (20% each). Each diffusion index is the sum of the percent responding "higher" and one-half of the percent responding "same".

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) Jul Jun May Jul'12 2012 2011 2010
ISM-Adjusted General Business Conditions 49.4 49.6 45.8 45.7 47.7 51.9 50.7
General Business Conditions 19.8 12.5 -5.2 -9.1 -0.2 7.7 12.1
  New Orders 10.2 16.6 -7.9 -2.1 -0.1 7.2 5.5
  Shipments 14.3 4.1 -8.5 -7.5 -1.4 9.9 8.3
  Unfilled Orders -1.8 -7.9 -9.3 -8.6 -6.5 -0.9 -3.0
  Delivery Time 0.5 -9.3 -6.0 -14.5 -9.1 -0.4 0.9
  Inventories -21.6 -6.6 4.1 -7.7 -6.0 -0.3 -4.9
  Number of Employees 7.7 -5.4 -8.7 -4.7 0.0 11.0 4.7
  Prices Paid 21.5 22.5 6.9 10.3 17.6 39.3 29.0
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