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Economy in Brief

Philadelphia Fed Business Conditions Index Disappoints
by Tom Moeller  December 19, 2013

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for December rose slightly to 7.0 from 6.5 in November. The figure nevertheless remained near its lowest level since May and was weaker than Consensus expectations for 10.2. For all of 2013, the Business Conditions Index increased to 6.4 from -0.2 in 2012. The seasonally adjusted figure constructed by Haver Analytics also was weak this month. It slipped to 53.0, the lowest level since August. 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.

Minimal improvement in the overall index reflected gains in new orders, shipments and employment. During the last ten year there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. To the down-side, however, were delivery times (faster), unfilled orders and inventories.

Pricing power also deteriorated. The prices paid index fell back to 20.1, the lowest level since August. A lessened twenty five percent of respondents paid higher prices and an increased five 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 deteriorated to 44.0, the lowest level since June. The new orders, shipments and employment series fell sharply. Inventories, unfilled orders and prices paid index also were off. Capital spending fell to a nine month low.

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) Dec Nov Oct Dec'12 2013 2012 2011
ISM-Adjusted General Business Conditions 53.0 53.2 56.9 49.8 50.0 47.7 51.9
General Business Conditions 7.0 6.5 19.8 4.6 6.4 -0.2 7.7
  New Orders 15.4 11.8 27.5 4.9 7.3 -0.1 7.2
  Shipments 13.3 5.6 20.4 14.7 7.1 -1.4 9.9
  Unfilled Orders -5.0 -4.2 9.1 -2.0 -3.8 -6.5 -0.9
  Delivery Time -9.0 3.2 6.1 -6.0 -4.0 -9.1 -0.4
  Inventories 14.8 15.3 7.3 -7.8 -3.2 -6.0 -0.3
  Number of Employees 2.2 1.1 15.4 -0.2 1.5 0.0 11.0
  Prices Paid 20.1 29.9 21.7 23.5 16.7 17.7 39.3
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