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Economy in Brief

Philadelphia Fed Factory Conditions Soften
by Tom Moeller  April 20, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index fell to 22.0 during April from an unrevised 32.8 in March. The latest monthly reading compared to expectations for 25.0 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics eased to 59.5 this month following last month's surge to 60.2. 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 overall business conditions index was led lower by sharp declines in the new orders, shipments and order backlog series. Offsetting these declines was a rise in the delivery time index, which showed the slowest delivery speeds since July 2004. Inventories also accumulated at the quickest pace since August 1981.

The employment series strengthened to the highest level since May 2011. 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 neared a 2004 high.

Prices paid backed away from its recent high. Thirty-six percent of respondents (NSA) reported paying higher prices, while three percent paid less. The prices received index softened.

The future business activity index backpedaled to the lowest level since November. Each of the sub-series eased with the exception of unfilled orders.

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.

Why Renegotiating NAFTA Could Disrupt Supply Chains from the Federal Reserve Bank of New York is available here.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Apr Mar Feb Apr'16 2016 2015 2014
General Factory Sector Business Conditions 22.0 32.8 43.3 -1.2 4.8 3.6 18.3
ISM-Adjusted Business Conditions 59.5 60.2 55.6 44.0 48.2 49.4 53.7
  New Orders 27.4 38.6 38.0 -0.4 4.9 3.0 14.9
  Shipments 23.4 32.9 28.6 -7.9 6.9 3.1 16.3
  Unfilled Orders 6.6 14.4 10.7 -7.4 -5.5 -5.1 3.3
  Delivery Time 13.2 4.5 4.1 -8.1 -4.6 -4.1 0.6
  Inventories 17.8 11.8 -4.7 -18.5 -9.7 -1.5 1.7
  Number of Employees 19.9 17.5 11.1 -16.6 -5.7 3.9 10.5
  Prices Paid 33.7 40.7 29.9 13.7 13.5 1.5 21.6
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