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Economy in Brief

Philadelphia Fed Business Conditions Index Dips M/M but Retains Strength
by Tom Moeller  October 17, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for October retreated to 19.8 from 22.3 in September. Nevertheless, the figure remained near the highest level since March 2011 and was firmer than Consensus expectations for 16.0. Strength also was indicated by the seasonally adjusted figure. It is constructed by Haver Analytics and is comparable to the ISM index. It improved to 56.9, the highest level since March 2011. During the last ten years there has been a 71% correlation between the adjusted Philadelphia Fed index and real GDP growth.

Deterioration in the overall index reflected declines in the shipments, prices paid and average workweek components. Elsewhere, the new orders series rose to its highest level since March 2011 as did the unfilled orders index. The delivery times series also was firm, indicating the slowest delivery speeds in two years. In addition, the employment index rose sharply to its highest level since May 2011. 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 deteriorated slightly. The prices paid index fell somewhat to 21.7 as one-quarter of respondents paid higher prices and four percent of firms 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 60.8, the highest level since September of 2003. The new orders and prices paid series were strongest but the employment figure backpedaled a bit.

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.

The Shifting and Twisting Beveridge Curve: An Aggregate Perspective from the Federal Reserve Bank of Richmond is available here.

Philadelphia Fed (%, SA) Oct Sep Aug Oct'12 2012 2011 2010
ISM-Adjusted General Business Conditions 56.9 53.6 48.7 46.6 47.7 51.9 50.7
General Business Conditions 19.8 22.3 9.3 4.2 -0.2 7.7 12.1
  New Orders 27.5 21.2 5.3 -0.5 -0.1 7.2 5.5
  Shipments 20.4 21.2 -0.9 -3.5 -1.4 9.9 8.3
  Unfilled Orders 9.1 4.3 -2.9 -7.1 -6.5 -0.9 -3.0
  Delivery Time 6.1 -1.2 -9.0 -14.9 -9.1 -0.4 0.9
  Inventories 7.3 -1.8 -11.3 -0.4 -6.0 -0.3 -4.9
  Number of Employees 15.4 10.3 3.5 -7.6 0.0 11.0 4.7
  Prices Paid 21.7 25.3 17.3 20.6 17.7 39.3 29.0
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