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Economy in Brief

Philadelphia Fed Business Conditions Survey Provides Mixed Readings
by Tom Moeller  July 21, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index declined in July to -2.9 from an unrevised 4.7 in June. Despite the lower reading, it remained up from December's low of -10.2. The increase compared to expectations for 4.7 in the Action Economics Forecast Survey.

Moving the other way, the ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics increased to 49.9 from 46.0, though both readings continued to indicate declining activity. The ISM-Adjusted headline index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each). This figure 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 decline in the Philadelphia Fed index was similar to the lower Empire State reading, released Friday. A lower prices paid index provided downward pressure on the overall index, as it fell to the lowest level since March. A lessened seventeen percent of respondents paid higher prices, while a higher seven percent paid less. The prices received measure also retreated to the lowest level since February.

Amongst the other components, the new orders and shipments indexes improved. Employment remained negative, although the rate of decline eased. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls.

The future business activity index improved moderately. Unfilled orders, inventories, employment and prices paid rose.

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 - Manufacturing Business Outlook Survey (%, SA) Jul Jun May Jul'15 2015 2014 2013
General Factory Sector Business Conditions -2.9 4.7 -1.8 0.7 3.6 18.3 6.1
ISM-Adjusted Business Conditions 49.9 46.0 47.6 48.5 49.4 53.7 50.0
  New Orders 11.8 -3.0 -1.9 3.1 2.9 14.9 7.2
  Shipments 6.3 -2.1 -0.5 -0.8 3.0 16.1 6.8
  Unfilled Orders 1.9 -12.6 -8.8 -8.7 -5.1 3.3 -3.9
  Delivery Time 1.3 -8.3 -14.6 -5.4 -6.4 0.6 -4.1
  Inventories -4.3 -9.9 -2.5 -4.0 -1.5 1.7 -3.5
  Number of Employees -1.6 -10.9 -3.3 -2.6 3.9 10.5 1.4
  Prices Paid 9.9 23.0 15.7 14.8 1.5 21.6 16.4
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