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Economy in Brief

Philadelphia Fed Business Conditions Index Slips
by Tom Moeller  May 16, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for May dipped to 15.4 from 16.6 in April. Nevertheless, the latest figure remained nearly the highest since last September and beat consensus expectations for 14.3, according to the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, remained above break-even at 52.4. 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.

Deterioration in the new orders, shipments, unfilled orders and employee workweek components carried the overall index lower. The employment index, however, nudged up to 7.8, its highest level since January. During the last ten years, there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. Also improving were the delivery times and inventories indexes.

Pricing power improved greatly to its best level in six months. A heightened 25 percent of respondents paid higher prices while a lesser 2 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 twelve months gained sharply to its highest level since February. Improvement in the new orders, shipments, unfilled orders, inventories, employment and prices paid components 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) May Apr Mar May'13 2013 2012 2011
ISM-Adjusted General Business Conditions 52.4 52.5 49.7 47.6 50.0 47.8 52.0
General Business Conditions 15.4 16.6 9.0 -1.7 6.4 -0.2 7.7
  New Orders 10.5 14.8 5.7 -6.6 7.3 -0.1 7.2
  Shipments 14.2 22.7 5.7 -3.9 7.1 -1.3 9.9
  Unfilled Orders -2.5 2.0 2.6 -7.3 -3.8 -6.5 -0.9
  Delivery Time -4.2 -14.3 -2.7 -5.2 -4.0 -9.1 -0.4
  Inventories -0.5 -1.5 -6.8 3.0 -3.2 -6.0 -0.3
  Number of Employees 7.8 6.9 1.7 -6.7 1.5 0.1 11.0
  Prices Paid 23.0 11.3 13.9 9.7 16.7 17.7 39.3
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