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Economy in Brief

Philadelphia Fed Business Conditions Index Remains Positive
by Tom Moeller  August 15, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for August slipped to 9.3 from 19.8 in July. Nevertheless, it was the fifth positive reading in the last six months. The figure disappointed expectations for 16.5. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index. It slipped marginally to 48.7 but remained nearly 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.

Deterioration in the series components versus July was widespread. The shipments figure fell to -0.9 and offset two months of positive readings. The delivery time figure returned to negative territory where it's been for most of the year. The new orders figure fell as well as did the employment reading, to a still-positive 3.5 from 7.7. During the last ten year there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. The unfilled orders also slipped but remained nearly its best reading since January. Working the other way was a moderate rise in the inventory reading. 

Pricing power deteriorated slightly but remained positive. Twenty four percent of firms paid higher prices while nine 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 slipped to 38.9 but remained at the highest level since January of 2012. The new orders and unfilled orders series backed off their earlier highs. Though the employment figure reversed most of its July improvement, it continued to indicate that near-term job growth will be positive. 

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) Aug Jul Jun Aug'12 2012 2011 2010
ISM-Adjusted General Business Conditions 48.7 49.4 49.6 47.0 47.7 51.9 50.7
General Business Conditions 9.3 19.8 12.5 -1.7 -0.2 7.7 12.1
  New Orders 5.3 10.2 16.6 -0.8 -0.1 7.2 5.5
  Shipments -0.9 14.3 4.1 -5.9 -1.4 9.9 8.3
  Unfilled Orders -2.9 -1.8 -7.9 -11.5 -6.5 -0.9 -3.0
  Delivery Time -9.0 0.5 -9.3 -10.0 -9.1 -0.4 0.9
  Inventories -11.3 -21.6 -6.6 -6.0 -6.0 -0.3 -4.9
  Number of Employees 3.5 7.7 -5.4 -7.6 0.0 11.0 4.7
  Prices Paid 17.3 21.5 22.5 15.7 17.7 39.3 29.0
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