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Economy in Brief

Philadelphia Fed Business Conditions Index Declines Again
by Tom Moeller  October 16, 2014

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for October fell to 20.7 from 22.5 in September. The reading was the lowest since June and roughly matched expectations in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, also slipped to 55.6 and roughly equaled 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 shipments, delivery times (quicker) and employment pulled the total down. During the last ten years, there has been a 66% correlation between the employment component and the m/m change in factory payrolls. To the upside were new and unfilled orders as well as inventories.

Pricing power improved slightly m/m but remained down versus the high four months ago. A lessened 29 percent of respondents paid higher prices while an easier 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 fell to the lowest level since March. 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) Oct Sep Aug Oct'13 2013 2012 2011
ISM-Adjusted General Business Conditions 55.6 56.0 55.1 55.7 50.0 47.8 52.0
General Factory Sector Business Conditions 20.7 22.5 28.0 15.6 6.4 -0.2 7.7
  New Orders 17.3 15.5 14.7 23.8 7.3 -0.1 7.2
  Shipments 16.6 21.6 16.5 17.3 7.1 -1.3 9.9
  Unfilled Orders 11.6 5.0 -4.1 6.8 -3.8 -6.5 -0.9
  Delivery Time 0.6 3.8 4.5 5.1 -4.0 -9.1 -0.4
  Inventories 14.8 6.1 8.3 -1.3 -3.2 -6.0 -0.3
  Number of Employees 12.1 21.2 9.1 14.6 1.5 0.1 11.0
  Prices Paid 27.6 27.0 24.9 21.0 16.7 17.7 39.3
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