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Economy in Brief

Philadelphia Fed Factory Business Conditions Index Strengthens
by Tom Moeller  February 16, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index jumped to 43.3 during February from January's 23.6. It was the highest level since January 1984. The latest monthly reading compared to expectations for 18.9 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics ticked higher to 55.6 this month, the highest level since November 2014. 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.

Stronger new orders and production components led the way higher, as they surged to multi-year highs. Unfilled orders also held at the best level in six years. Delivery times eased, however, indicating quicker delivery speeds, while inventories fell.

The employment series slipped from its roughly two-year high. 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 strengthened to an expansion high.

Prices paid slipped from its recent high and prices received dropped sharply.

The future business activity index eased following its January surge. Most component series fell m/m, but remained near the highest levels of the expansion.

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.

Does Growing Mismeasurement Explain Disappointing Growth? from the Federal Reserve Bank of San Francisco can be found here.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Feb Jan Dec Feb'16 2016 2015 2014
General Factory Sector Business Conditions 43.3 23.6 19.7 -3.8 4.8 3.6 18.3
ISM-Adjusted Business Conditions 55.6 55.5 53.6 45.5 48.2 49.4 53.7
  New Orders 38.0 26.0 14.9 -3.9 4.9 2.9 14.9
  Shipments 28.6 20.5 21.7 3.7 6.9 3.1 16.3
  Unfilled Orders 10.7 10.7 3.6 -11.8 -5.5 -5.1 3.3
  Delivery Time 4.1 5.4 5.4 -15.4 -4.6 -4.1 0.6
  Inventories -4.7 12.2 1.3 -16.1 -9.7 -1.5 1.7
  Number of Employees 11.1 12.8 3.6 -4.4 -5.7 3.9 10.5
  Prices Paid 29.9 32.5 28.1 -2.8 13.5 1.5 21.6
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