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Economy in Brief

Philadelphia Fed Business Conditions Index Rebounds to Nine-Month High
by Tom Moeller  June 19, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for June improved to 17.8 from 15.4 in May. The figure was the highest since September and beat consensus expectations for a decline to 13.9, according to the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, increased to 53.9, its highest level since October. 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.

Broad-based component improvement accounted for the overall index gain as new orders, shipments, unfilled orders, delivery times and inventories increased. The employment index also rose to 11.9, its highest level since October. During the last ten years, there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls.

Pricing power improved notably to its best level since July 2011. A heightened 36 percent of respondents paid higher prices while an easier 1 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 rose sharply to its highest level since October. Improvement in the new orders, shipments, unfilled orders, inventories, employment, prices paid and capital expenditures components raised the total.

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) Jun May Apr Jun'13 2013 2012 2011
ISM-Adjusted General Business Conditions 53.9 52.4 52.5 50.5 50.0 47.8 52.0
General Business Conditions 17.8 15.4 16.6 14.4 6.4 -0.2 7.7
  New Orders 16.8 10.5 14.8 17.3 7.3 -0.1 7.2
  Shipments 15.5 14.2 22.7 8.2 7.1 -1.3 9.9
  Unfilled Orders 11.5 -2.5 2.0 -4.6 -3.8 -6.5 -0.9
  Delivery Time 6.0 -4.2 -14.3 -5.9 -4.0 -9.1 -0.4
  Inventories -6.7 -0.5 -1.5 -6.6 -3.2 -6.0 -0.3
  Number of Employees 11.9 7.8 6.9 -3.5 1.5 0.1 11.0
  Prices Paid 35.0 23.0 11.3 23.7 16.7 17.7 39.3
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