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Economy in Brief

Philadelphia Fed Business Conditions Index Retreats as Prices Advance
by Tom Moeller  November 21, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for November fell back to 6.5 from 19.8 in October. The figure was at its lowest level in six months and was weaker than Consensus expectations for 16.1. The seasonally adjusted figure constructed by Haver Analytics also was weak. It retreated to 53.2 and it's comparable to the ISM Composite index. 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 broad-based component weakness, especially shipments, new orders, unfilled orders and delivery times. In addition, the employment index dropped to its lowest level since June. During the last ten year there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. Offsetting these declines was a jump in the inventories index to its highest level since June 2004. 

Pricing power improved. The prices paid index jumped to 29.9, the highest level since September 2011. Thirty percent of respondents paid higher prices and no 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 fell sharply to 45.8, the lowest level in three months. The new orders and shipments series fell sharply though employment was roughly unchanged at a level well below its July high.

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) Nov Oct Sep Nov'12 2012 2011 2010
ISM-Adjusted General Business Conditions 53.2 56.9 53.6 45.5 47.7 51.9 50.7
General Business Conditions 6.5 19.8 22.3 -8.9 -0.2 7.7 12.1
  New Orders 11.8 27.5 21.2 -4.7 -0.1 7.2 5.5
  Shipments 5.6 20.4 21.2 -6.3 -1.4 9.9 8.3
  Unfilled Orders -4.2 9.1 4.3 -5.7 -6.5 -0.9 -3.0
  Delivery Time 3.2 6.1 -1.2 -11.4 -9.1 -0.4 0.9
  Inventories 15.3 7.3 -1.8 -9.6 -6.0 -0.3 -4.9
  Number of Employees 1.1 15.4 10.3 -6.9 0.0 11.0 4.7
  Prices Paid 29.9 21.7 25.3 27.9 17.7 39.3 29.0
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