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Economy in Brief

Philadelphia Fed Factory Business Outlook Survey Indicates Growth
by Tom Moeller  November 18, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index remained positive in November. At 7.6, it was fourth consecutive reading above zero, and followed an unrevised 9.7 in October. It was improved versus December's low of -10.2. The reading compared to expectations for 8.0 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics surged to 55.3 this month, the highest level in two years. 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.

There was broad-based improvement amongst the component series. New orders improved to the highest level in two years, while shipments similarly rose. Unfilled orders and delivery times improved, but inventories jumped to the highest level of the economic expansion.

The employment component, though still slightly negative, increased to the highest point since July. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing sector payrolls.

Prices paid and prices received both strengthened to the highest levels since 2014. The index of expected prices paid eased slightly.

The future business activity index declined m/m to the lowest level since March due to broad-based declines amongst the 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 Action Economics figure is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Nov Oct Sep Nov'15 2015 2014 2013
General Factory Sector Business Conditions 7.6 9.7 12.8 -5.7 3.6 18.3 6.1
ISM-Adjusted Business Conditions 55.3 49.8 43.7 46.8 49.4 53.7 50.0
  New Orders 18.6 16.3 1.4 -7.8 2.9 14.9 7.2
  Shipments 19.5 15.3 -8.8 -3.6 3.0 16.1 6.8
  Unfilled Orders 4.1 -0.7 -10.8 -4.3 -5.1 3.3 -3.9
  Delivery Time 6.1 -0.3 -9.3 -2.9 -6.4 0.6 -4.1
  Inventories 13.4 -12.8 -26.2 -9.9 -1.5 1.7 -3.5
  Number of Employees -2.6 -4.0 -5.3 1.1 3.9 10.5 1.4
  Prices Paid 27.5 7.0 20.6 -7.5 1.5 21.6 16.4
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