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Economy in Brief

ISM-Adjusted Philly Fed Business Conditions Index Declines
by Tom Moeller  January 16, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for January rose slightly to 9.4 from 6.4 in December. Nevertheless, it remained down sharply from the September high. The latest figure roughly matched Consensus expectations for 8.8 and last year's figures were revised. The seasonally adjusted figure constructed by Haver Analytics fell to 48.8, the lowest level since last May. 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.

Weakness in the overall index reflected sharp declines in new orders and inventories. Shipments, unfilled orders and employment each improved. 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 improved moderately. The prices paid index rose to 18.7 but was near the lowest level since May. Twenty five percent of respondents paid higher prices and six 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 fell sharply to 34.4, the lowest level since April. The new orders, shipments and delivery times indexes fell sharply. Employment slipped to its lowest level since May. Capital spending improved slightly but still is down sharply from the summer highs.

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) Jan Dec Nov Jan'13 2013 2012 2011
ISM-Adjusted General Business Conditions 48.8 53.1 53.4 45.9 50.0 47.8 52.0
General Business Conditions 9.4 6.4 9.2 -5.6 6.4 -0.2 7.7
  New Orders 5.1 12.9 14.0 -4.5 7.3 -0.1 7.2
  Shipments 12.1 11.9 7.8 -0.2 7.1 -1.3 9.9
  Unfilled Orders -1.0 -6.6 -4.6 -2.3 -3.8 -6.5 -0.9
  Delivery Time -2.8 -8.0 0.7 -4.2 -4.0 -9.1 -0.4
  Inventories -19.6 16.0 13.9 -7.5 -3.2 -6.0 -0.3
  Number of Employees 10.0 4.4 2.2 -6.4 1.5 0.1 11.0
  Prices Paid 18.7 16.4 25.4 11.8 16.7 17.7 39.3
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