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Economy in Brief

Philadelphia Fed Factory Conditions Index Declines Further
by Tom Moeller  July 20, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index fell to 19.5 during July and added to its June decline to 27.6. It was the lowest reading since November. The figure compared to expectations for 22.5 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics fell to 52.5 this month, its lowest level in nine months. 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 overall index reflected broad-based weakness in the component series. New orders were barely positive and shipments declined to the lowest point since September 2016. Unfilled orders, inventories and the delivery time index each weakened.

The employment series fell to the lowest level since December. 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 declined sharply to the weakest reading since November.

Prices paid declined to a nine-month low. Twenty-four percent of respondents (NSA) reported paying higher prices, while five percent paid less. The prices received index also fell sharply to the lowest level this year.

The future business activity index improved moderately from its nine-month low. Most of the sub-series increased m/m with the exceptions of shipments and employment.

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'16 2016 2015 2014
General Factory Sector Business Conditions 19.5 27.6 38.8 -0.9 4.8 3.6 18.3
ISM-Adjusted Business Conditions 52.5 57.9 58.1 48.5 48.2 49.4 53.7
  New Orders 2.1 25.9 25.4 6.1 4.9 3.0 14.9
  Shipments 12.2 28.5 39.1 2.3 6.9 3.1 16.3
  Unfilled Orders 7.2 14.0 9.0 0.2 -5.5 -5.1 3.3
  Delivery Time 7.4 13.9 6.4 1.0 -4.6 -4.1 0.6
  Inventories 0.7 5.8 1.4 -7.1 -0.7 -1.5 1.7
  Number of Employees 10.9 16.1 17.3 -1.0 -5.7 3.9 10.5
  Prices Paid 19.1 23.6 24.2 11.9 13.5 1.5 21.6
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