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Economy in Brief

Philadelphia Fed Business Conditions Index Deteriorates; New Orders Ease
by Tom Moeller  December 17, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for December fell to -5.9, the third negative reading in the last four months. Expectations were for 1.5 in the Action Economics Forecast Survey.

The ISM adjusted general business conditions index constructed by Haver Analytics held steady at 48.1. Below 50 for the third straight month, it suggested a declining level of factory sector activity. 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 mixed. New orders were negative for the third straight month. Unfilled orders fell and vendor delivery speeds turned negative, suggesting faster delivery speeds. To the upside, the shipments and inventory figures both moved into positive territory. The employment measure built on its November improvement, rising to the highest level 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.

On the pricing front, the prices paid index showed deflation for a third consecutive month as it dropped to the lowest level since May. Eight percent of respondents paid higher prices but 18% paid less, up from 4% six months ago. The prices received measure fell to its lowest reading since August 2010.

The future business activity index deteriorated sharply to its lowest level since November 2012, dragged down by weaker readings for new and unfilled orders. Shipments and employment also deteriorated sharply.

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) Dec Nov Oct Dec'14 2015 2014 2013
ISM-Adjusted General Business Conditions 48.1 48.1 44.9 53.9 50.2 53.6 50.8
General Factory Sector Business Conditions -5.9 1.9 -4.5 24.3 3.8 18.6 6.4
  New Orders -9.5 -3.7 -10.6 13.6 3.0 15.0 7.2
  Shipments 3.7 -2.5 -6.1 15.1 3.2 16.4 7.1
  Unfilled Orders -17.7 2.4 -11.7 2.7 -5.0 3.3 -3.8
  Delivery Time -6.1 0.5 -1.2 -0.2 -4.0 0.7 -4.0
  Inventories 1.4 -7.9 -17.4 7.3 -1.4 1.8 -3.4
  Number of Employees 4.1 2.6 -1.7 8.4 4.0 10.6 1.5
  Prices Paid -9.8 -4.9 -0.1 14.4 1.6 21.7 16.6
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