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Economy in Brief

Philadelphia Fed Business Conditions Index Furthers Its Sideways Movement
by Tom Moeller  May 21, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for May slipped to 6.7 from an unrevised 7.5 in April. It's been near that level all year, remaining well below the high of 40.2 reached in November. Expectations averaged 8.0 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, also slipped to 50.3 and remained in this year's range. It was down, however, from November's high of 58.7. 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 unfilled orders series improved while inventories, delivery times and the average workweek eased. The employment index also weakened slightly following strength in the prior three months. 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 prices paid index plunged further into negative territory, to the weakest reading since the recession's end. Five percent of respondents paid higher prices. It was 28% twelve months ago. Nineteen percent paid less, up from 1% a year ago. 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 ticked slightly lower and remained well below the high last August. Little movement was logged m/m amongst most component series.

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) May Apr Mar May'14 2014 2013 2012
ISM-Adjusted General Business Conditions 50.3 50.9 47.4 52.8 53.7 50.0 47.8
General Factory Sector Business Conditions 6.7 7.5 5.0 18.3 18.6 6.4 -0.2
  New Orders 4.0 0.7 3.9 13.6 15.0 7.2 -0.1
  Shipments 1.0 -1.8 -7.8 16.4 16.4 7.1 -1.3
  Unfilled Orders -1.1 -7.1 -13.8 0.3 3.3 -3.8 -6.5
  Delivery Time -3.6 0.5 -13.4 -3.8 0.7 -4.0 -9.1
  Inventories -1.8 1.5 -2.3 -1.0 1.8 -3.4 -6.0
  Number of Employees 6.7 11.5 3.5 8.6 10.6 1.5 0.1
  Prices Paid -14.2 -7.5 -3.0 26.5 21.7 16.6 17.7
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