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Economy in Brief

Philadelphia Fed Business Conditions Remains Below Break-Even
by Tom Moeller  October 15, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for October remained negative for the second straight month. At -4.5, the latest figure was barely above September's -6.0 and both were the first negative readings since early 2014. Expectations were for -2.0 in the Action Economics Forecast Survey.

The seasonally adjusted figure constructed by Haver Analytics declined to 44.7, the lowest figure since mid-2012. 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 components of the overall index were uniformly negative this month and each fell versus September. Shipments and new orders showed notable m/m deterioration. The employment measure was negative for the first time in nine months. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls.

On the pricing front, the prices paid index eased into negative territory to its lowest reading since May. Nineteen percent of respondents paid higher prices and 19% paid less, up from 7% just two months ago. The prices received measure improved to its highest level since June.

The future business activity index fell sharply to its lowest level since May. The decline reflected deterioration in most every 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 Action Economics figure is available in AS1REPNA.

Philadelphia Fed (%, SA) Oct Sep Aug Oct'14 2014 2013 2012
ISM-Adjusted General Business Conditions 44.7 51.0 52.6 54.6 53.7 50.0 47.8
General Factory Sector Business Conditions -4.5 -6.0 8.3 19.0 18.6 6.4 -0.2
  New Orders -10.6 9.4 5.8 13.8 15.0 7.2 -0.1
  Shipments -6.1 14.8 16.7 20.0 16.4 7.1 -1.3
  Unfilled Orders -11.7 -6.6 -1.0 8.4 3.3 -3.8 -6.5
  Delivery Time -1.2 0.5 -0.4 2.6 0.7 -4.0 -9.1
  Inventories -17.4 -2.7 0.2 9.2 1.8 -3.4 -6.0
  Number of Employees -1.7 10.2 5.3 11.2 10.6 1.5 0.1
  Prices Paid -0.1 0.5 6.2 24.9 21.7 16.6 17.7
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