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Economy in Brief

Philadelphia Fed Business Conditions Index Improves to Three-Year High
by Tom Moeller  July 17, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for July jumped to 23.9 from 17.8 in June. The figure was the highest since March 2011 and it beat consensus expectations for a decline to 16.0, according to the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, jumped to 58.6, just above its highest level of the economic recovery. 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.

The new orders, shipments and vendor deliveries indexes each surged to the highest levels since before the recession. The employment index also gained modestly to 12.2, its highest 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. The inventories and average workweek figures also posted solid increases but unfilled orders fell.

Pricing power eased slightly m/m but remained near the highest level since July 2011. A steady 36 percent of respondents paid higher prices while an unchanged 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 also surged to its highest level in nine months. Improvement in shipments and delivery times accounted for the gain.

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) Jul Jun May Jul'13 2013 2012 2011
ISM-Adjusted General Business Conditions 58.6 53.9 52.4 49.4 50.0 47.8 52.0
General Business Conditions 23.9 17.8 15.4 18.0 6.4 -0.2 7.7
  New Orders 34.2 16.8 10.5 11.3 7.3 -0.1 7.2
  Shipments 34.2 15.5 14.2 14.5 7.1 -1.3 9.9
  Unfilled Orders 9.1 11.5 -2.5 -0.6 -3.8 -6.5 -0.9
  Delivery Time 9.6 6.0 -4.2 -0.5 -4.0 -9.1 -0.4
  Inventories 4.8 -6.7 -0.5 -19.0 -3.2 -6.0 -0.3
  Number of Employees 12.2 11.9 7.8 6.4 1.5 0.1 11.0
  Prices Paid 34.7 35.0 23.0 22.7 16.7 17.7 39.3
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