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Economy in Brief

Philadelphia Fed Business Conditions Index Improves Sharply
by Tom Moeller  March 20, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for March rebounded to 9.0 and made up February's falloff to -6.3. The latest figure surpasses Consensus expectations for 4.0. The seasonally adjusted figure, constructed by Haver Analytics, also moved up to a level of 49.7. 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.

Rebounds in the new orders, shipments and unfilled orders components led the overall index higher. The employment index, however, fell to its lowest level in nine months. During the last ten years there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. Also falling were the delivery time and inventory series.

Pricing power diminished as the prices paid index fell to its lowest level since last May. A lessened 19 percent of respondents paid higher prices and a lower 5 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 reversed its February improvement and fell to nearly its lowest level since May. Deterioration in the new orders, unfilled orders, employee workweek paced the fall while employment, shipments and inventories rose. The future prices paid index improved moderately but the capital expenditures series jumped to nearly its highest level of the recovery.

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) Mar Feb Jan Mar'13 2013 2012 2011
ISM-Adjusted General Business Conditions 49.7 47.7 48.8 47.8 50.0 47.8 52.0
General Business Conditions 9.0 -6.3 9.4 -1.4 6.4 -0.2 7.7
  New Orders 5.7 -5.2 5.1 -1.9 7.3 -0.1 7.2
  Shipments 5.7 -9.9 12.1 1.4 7.1 -1.3 9.9
  Unfilled Orders 2.6 -2.6 -1.0 -7.3 -3.8 -6.5 -0.9
  Delivery Time -2.7 2.9 -2.8 -8.5 -4.0 -9.1 -0.4
  Inventories -6.8 3.6 -19.6 -3.8 -3.2 -6.0 -0.3
  Number of Employees 1.7 4.8 10.0 -0.9 1.5 0.1 11.0
  Prices Paid 13.9 14.2 18.7 7.6 16.7 17.7 39.3
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