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Economy in Brief

Philadelphia Fed Factory Business Outlook Survey Strengthens
by Tom Moeller  December 15, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index jumped to 21.5 during December from November's 7.6. It was the highest level since November 2014. The reading for all of 2016 increased to 4.8, but remained below the 2010 high of 12.1. The latest monthly reading compared to expectations for 9.0 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics eased to 53.8 this month, but remained near the two-year high. 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 mixed movement amongst the component series this month. New orders fell, but remained near the two-year high. Shipments, however, increased to a two-year high. Unfilled orders and delivery times improved, but inventories backpedaled to the lowest level in three months.

The employment component turned positive for the first time this year. It jumped to the highest level since May 2015. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing sector payrolls. The average workweek reading jumped to the highest point since April 2011.

Prices paid strengthened to the highest level since July 2011. Prices received fell, but remained positive.

The future business activity index surged to the highest level since January of last year. The component series exhibited broad-based strength.

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) Dec Nov Oct Dec'15 2016 2015 2014
General Factory Sector Business Conditions 21.5 7.6 9.7 -10.2 4.8 3.6 18.3
ISM-Adjusted Business Conditions 53.8 55.3 49.8 45.2 48.2 49.4 53.7
  New Orders 13.9 18.6 16.3 -11.1 4.9 2.9 14.9
  Shipments 22.0 19.5 15.3 -2.1 7.0 3.0 16.1
  Unfilled Orders 5.7 4.1 -0.7 -17.6 -5.5 -5.1 3.3
  Delivery Time 7.6 6.1 -0.3 -6.1 -4.5 -6.4 0.6
  Inventories 1.1 13.4 -12.8 -5.7 -9.7 -1.5 1.7
  Number of Employees 6.4 -2.6 -4.0 2.2 -5.6 3.9 10.5
  Prices Paid 29.4 27.5 7.0 -8.3 13.5 1.5 21.6
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