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Economy in Brief

Philadelphia Fed Business Conditions Index Strengthens but Pricing Power Diminishes
by Tom Moeller  August 20, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for August improved to 8.3 following an unrevised decline to 5.7 in July. Expectations were for 6.5 in the Action Economics Forecast Survey. The seasonally adjusted figure constructed by Haver Analytics increased to 52.6 following its decline to below break-even during July. 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.

Strength in the shipments component paced the overall index rise with an increase to the highest level in nine months. Inventories also rose sharply. The employment measure recovered to its highest point in three months. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls. The average workweek increased sharply to the highest point in twelve months. Unfilled orders and delivery times improved but the new orders series backpedaled for a second month.

On the pricing front, the prices paid index deteriorated to a three-month low. A reduced 13 percent of respondents paid higher prices while 7 percent paid less. The prices received measure improved modestly but remained well below its March high.

The future business activity index improved to its highest level since January. New orders, inventories, capital expenditures and prices paid improved but all other component series eased.

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) Aug Jul Jun Aug'14 2014 2013 2012
ISM-Adjusted General Business Conditions 52.6 49.2 52.0 55.5 53.7 50.0 47.8
General Factory Sector Business Conditions 8.3 5.7 15.2 25.5 18.6 6.4 -0.2
  New Orders 5.8 7.1 15.8 31.4 15.0 7.2 -0.1
  Shipments 16.7 4.4 14.3 18.9 16.4 7.1 -1.3
  Unfilled Orders -1.0 -6.3 3.7 -3.4 3.3 -3.8 -6.5
  Delivery Time -0.4 -4.5 -4.6 4.1 0.7 -4.0 -9.1
  Inventories 0.2 -5.7 3.1 8.5 1.8 -3.4 -6.0
  Number of Employees 5.3 -0.4 3.8 9.9 10.6 1.5 0.1
  Prices Paid 6.2 20.2 17.2 24.1 21.7 16.6 17.7
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