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Economy in Brief

Philadelphia Fed Business Conditions Index Continues to Deteriorate
by Tom Moeller  March 19, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for March declined to 5.0 from an unrevised 5.2 in February. The number remained at the lowest point since February 2014 and was below expectations for 7.3 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, also deteriorated to 47.4, the lowest figure since April 2013. 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 was all-inclusive last month. The shipments index declined sharply, likely due to heavy snowfall. The new orders index slipped to its lowest level since February of last year. The employment component slipped and remained well below last year's high. During the last ten years, there has been an 81% correlation between the employment index level and the m/m change in factory sector employment. The unfilled orders, inventories & delivery times indexes each fell sharply.

The prices paid index eased into negative territory for the first time since near the end of the recession. Also, the prices received series deteriorated sharply. A lessened 14 percent of respondents paid higher prices but a sharply higher 17 paid less, 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 stabilized after its sharp deterioration in February. Sharp declines in new orders, shipments and employment were countered by improvement in unfilled orders & delivery times. Prices paid fell modestly.

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) Mar Feb Jan Mar'14 2014 2013 2012
ISM-Adjusted General Business Conditions 47.4 51.7 47.8 50.7 53.7 50.0 47.8
General Factory Sector Business Conditions 5.0 5.2 6.3 10.7 18.6 6.4 -0.2
  New Orders 3.9 5.4 8.5 8.2 15.0 7.2 -0.1
  Shipments -7.8 8.1 -6.9 7.6 16.4 7.1 -1.3
  Unfilled Orders -13.8 7.3 -8.6 3.4 3.3 -3.8 -6.5
  Delivery Time -13.4 -4.6 -11.0 -2.1 0.7 -4.0 -9.1
  Inventories -2.3 15.2 -0.7 -6.6 1.8 -3.4 -6.0
  Number of Employees 3.5 3.9 -2.0 3.5 10.6 1.5 0.1
  Prices Paid -3.0 4.7 9.8 18.3 21.7 16.6 17.7
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