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Economy in Brief

Philadelphia Fed Business Conditions Index Slips but Remains Firm
by Tom Moeller  September 18, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for September edged down to 22.5 from 28.0 in August. Despite the decline, the figure remained near the highest point since March 2011. It roughly matched expectations for 22.8 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, improved to 56.0 and remained above the year ago level. 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.

Lower readings for delivery times (quicker), inventories and the length of the average workweek accounted for the decline in the overall index. To the upside, the current employment index surged to the highest level since May 2011. New orders were roughly unchanged but remained down sharply from the July high. Shipments also gained modestly m/m but also remained down from the July high. Unfilled orders rose moderately.

Pricing power improved slightly m/m but remained down versus the high three months ago. An improved 31 percent of respondents paid higher prices while an easier 4 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 backpedaled somewhat m/m but remained firm. Declines were evident in most components.

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) Sep Aug Jul Sep'13 2013 2012 2011
ISM-Adjusted General Business Conditions 56.0 55.1 58.6 53.9 50.0 47.8 52.0
General Business Conditions 22.5 28.0 23.9 20.0 6.4 -0.2 7.7
  New Orders 15.5 14.7 34.2 20.8 7.3 -0.1 7.2
  Shipments 21.6 16.5 34.2 21.9 7.1 -1.3 9.9
  Unfilled Orders 5.0 -4.1 9.1 3.8 -3.8 -6.5 -0.9
  Delivery Time 3.8 4.5 9.6 -1.2 -4.0 -9.1 -0.4
  Inventories 6.1 8.3 4.8 -1.3 -3.2 -6.0 -0.3
  Number of Employees 21.2 9.1 12.2 10.2 1.5 0.1 11.0
  Prices Paid 27.0 24.9 34.7 25.9 16.7 17.7 39.3
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