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Economy in Brief

Philadelphia Fed Business Conditions Index Falls To 12-Month Low
by Tom Moeller  February 19, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for February declined to 5.2 from 6.3 in January. The number was at the lowest point since February 2014 and below expectations for 9.0 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, improved moderately to 51.7. Despite the gain, it was the lowest figure since March. 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.

Weakness in the overall series centered on declines in the new orders and prices paid components. Amongst the other series, there were moderate increases, although the inventories series backed up to the highest level since June 2004. The employment component recovered somewhat but remained well below its September high. During the last ten years, there has been a 79% correlation between the employment index level and the m/m change in factory sector employment.

Prices paid continued to ease to its weakest level since June 2012. Also, the prices received series remained stable at the lowest point since June 2013. A lessened 15 percent of respondents paid higher prices. A fairly steady 10 percent paid less, but that was up from last year's 1 percent low. 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 dropped sharply to its lowest point since April 2013. Component declines were widespread, notably inventories and delivery times. Working moderately higher were employment and prices paid.

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.

Financial Institutions, Financial Markets, and Financial Stability from the Federal Reserve Board is available here.

Philadelphia Fed (%, SA) Feb Jan Dec Feb'14 2014 2013 2012
ISM-Adjusted General Business Conditions 51.7 47.8 53.9 48.6 53.7 50.0 47.8
General Factory Sector Business Conditions 5.2 6.3 24.3 -2.0 18.6 6.4 -0.2
  New Orders 5.4 8.5 13.6 2.5 15.0 7.2 -0.1
  Shipments 8.1 -6.9 15.1 -6.0 16.4 7.1 -1.3
  Unfilled Orders 7.3 -8.6 2.7 -1.6 3.3 -3.8 -6.5
  Delivery Time -4.6 -11.0 -0.2 -0.6 0.7 -4.0 -9.1
  Inventories 15.2 -0.7 7.3 2.1 1.8 -3.4 -6.0
  Number of Employees 3.9 -2.0 8.4 5.3 10.6 1.5 0.1
  Prices Paid 4.7 9.8 14.4 14.8 21.7 16.6 17.7
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