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Economy in Brief

Philadelphia Fed Business Conditions Index Is Disappointing
by Tom Moeller  February 20, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for February fell sharply to -6.3 from 9.4 in January. It was the lowest level in twelve months and remained meaningfully lower than the September high. The latest figure fell well short of Consensus expectations for 10.0. The seasonally adjusted figure constructed by Haver Analytics fell to 47.7, the lowest level in nine months. It is 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 shipments. The employment index also reversed its January improvement. 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 upside was the inventories series.

Pricing power reversed its earlier improvement and fell to the lowest level since May. Twenty four percent of respondents paid higher prices but a higher ten 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 recovered slightly after its sharp January falloff. Improvement in the shipments, delivery time and inventories indexes offset declines in employment, new orders and unfilled orders. The future prices paid index fell sharply but the capital expenditures series improved.

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) Feb Jan Dec Feb'13 2013 2012 2011
ISM-Adjusted General Business Conditions 47.7 48.8 53.1 46.6 50.0 47.8 52.0
General Business Conditions -6.3 9.4 6.4 -11.9 6.4 -0.2 7.7
  New Orders -5.2 5.1 12.9 -7.7 7.3 -0.1 7.2
  Shipments -9.9 12.1 11.9 -1.4 7.1 -1.3 9.9
  Unfilled Orders -2.6 -1.0 -6.6 -12.2 -3.8 -6.5 -0.9
  Delivery Time 2.9 -2.8 -8.0 -2.5 -4.0 -9.1 -0.4
  Inventories 3.6 -19.6 16.0 -8.6 -3.2 -6.0 -0.3
  Number of Employees 4.8 10.0 4.4 -3.2 1.5 0.1 11.0
  Prices Paid 14.2 18.7 16.4 10.6 16.7 17.7 39.3
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