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Economy in Brief

Philadelphia Fed Business Conditions Index Improves Sharply
by Tom Moeller  September 19, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for September jumped to 22.3 from 9.3 in August. This latest reading was the highest since March 2011 and was much firmer than Consensus expectations for 10.0. Haver Analytics constructs a seasonally adjusted figure comparable to the ISM index. It jumped to 53.6, the highest level since April 2011. During the last ten years there has been a 71% correlation between the adjusted Philadelphia Fed index and real GDP growth.

Improvement in the component series was all-inclusive. The shipments figure jumped to 21.2 after turning slightly negative last month and the orders number rose to 21.2, its highest level since March, 2011. The inventory reading of -1.8 suggested a much slower rate of decumulation and the unfilled orders number jumped to its highest level since April 2011. The employment reading of 10.3 was its highest level since April 2012. During the last ten year there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls.  

Pricing power also improved. The prices paid index of 25.3 reflected nearly one-third of respondents paying higher prices and just six percent of firms paying 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 surged to 58.2, the highest level since September of 2003 (no typo). The new orders and shipments series jumped. The employment figure reversed its August decline and continued to indicate that near-term job growth will improve. 

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) Sep Aug Jul Sep'12 2012 2011 2010
ISM-Adjusted General Business Conditions 53.6 48.7 49.4 45.1 47.7 51.9 50.7
General Business Conditions 22.3 9.3 19.8 1.4 -0.2 7.7 12.1
  New Orders 21.2 5.3 10.2 2.5 -0.1 7.2 5.5
  Shipments 21.2 -0.9 14.3 -10.4 -1.4 9.9 8.3
  Unfilled Orders 4.3 -2.9 -1.8 -5.9 -6.5 -0.9 -3.0
  Delivery Time -1.2 -9.0 0.5 -7.6 -9.1 -0.4 0.9
  Inventories -1.8 -11.3 -21.6 -19.8 -6.0 -0.3 -4.9
  Number of Employees 10.3 3.5 7.7 -4.9 0.0 11.0 4.7
  Prices Paid 25.3 17.3 21.5 15.4 17.7 39.3 29.0
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