Philadelphia Fed Business Conditions Survey Provides Mixed Readings

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index declined in July to -2.9 from an unrevised 4.7 in June. Despite the lower reading, it remained up from December's low of -10.2. The increase compared to expectations for 4.7 in the Action Economics Forecast Survey.

Moving the other way, the ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics increased to 49.9 from 46.0, though both readings continued to indicate declining activity. 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.

The decline in the Philadelphia Fed index was similar to the lower Empire State reading, released Friday. A lower prices paid index provided downward pressure on the overall index, as it fell to the lowest level since March. A lessened seventeen percent of respondents paid higher prices, while a higher seven percent paid less. The prices received measure also retreated to the lowest level since February.

Amongst the other components, the new orders and shipments indexes improved. Employment remained negative, although the rate of decline eased. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls.

The future business activity index improved moderately. Unfilled orders, inventories, employment and prices paid rose.

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.

Sales of existing homes increased 1.8% (4.5% y/y) during May to 5.530 million (SAAR) from 5.430 million in April, revised from 5.450 million. The latest level was the highest since February 2007. It surpassed expectations for 5.55 million sales in the Action Economics Forecast Survey. Sales of existing single-family homes gained 1.9% last month (4.7% y/y) to 4.900 million. Sales of condos & cops rose 1.6% (3.3% y/y) to 630,000.

The median price of all previously owned homes increased 3.8% to $239,700 (4.7% y/y) from $230,900, revised from $232,500. Annualized growth in prices has been roughly steady for the past two years, but falls short of the double-digit increases in 2013. The average price of an existing home increased 3.0% to $281,700 (3.2% y/y).

Home sales were strongest last month in the West where they posted a 5.4% rise (-1.7% y/y) to 1.180 million. Home sales in the South followed with a 4.6% rise (6.5% y/y) to 2.280 million. Home sales in the Northeast increased 4.1% (11.6% y/y) to 770,000, but they declined 6.5% (+3.2% y/y) to 1.300 million in the Midwest.

The number of existing homes on the market declined 5.7% y/y, but the months' supply of homes held at 4.7, about where it's been for three years.

The data on existing home sales, prices and affordability can be found in Haver's USECON database. The regional price, affordability and inventory data are available in the REALTOR database. The expectations figure is from the Action Economics Forecast Survey, reported in the AS1REPNA database.

The Conference Board's Composite Index of Leading Economic Indicators increased 0.3% during June (0.7% y/y), following an unrevised 0.2% May decline. Expectations had been for a 0.2% rise in the Action Economics Forecast Survey. The three-month change in the index improved to 2.3% (AR) versus its peak growth of 7.1% roughly one year ago. Lower initial claims for unemployment insurance had the largest positive impact on the total index followed by a steeper interest rate yield curve. The leading credit index increased and most other component posted modest increases. A shorter average workweek provided the only negative influence on the total.     

The coincident index remained unchanged (1.7% y/y) following a 0.2% rise, revised from 0.3%. Three-month growth deteriorated to 0.7% (AR). Industrial production had a negative effect on the total, while nonfarm payrolls, personal income less transfers and manufacturing & trade sales contributed positively to the index.

The lagging index increased 0.3% (4.2% y/y) after a downwardly revised 0.2% gain. Three month growth eased to a still strong 4.7%. A longer duration of unemployment, a higher consumer installment debt/personal income ratio and more C&I loans had the largest positive impacts on the index. Growth in labor costs contributed negatively.

The ratio of coincident-to-lagging indicators also is a leading indicator of economic activity. It measures excesses in the economy relative to its ongoing performance. This ratio continued a decline to the lowest level since 1961.

The Conference Board figures are available in Haver's BCI database; the components are available there, and most are also in USECON. The expectations  are in the AS1REPNA database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

The National Activity Index from the Federal Reserve Bank of Chicago declined to -0.51 during May, following one month in positive territory. It suggested below-trend overall economic growth. The three month moving average reinforced this notion by being in negative territory since February 2015. During the last ten years, there has been a 77% correlation between the Chicago Fed Index and the q/q change in real GDP.

Each of the component series declined last month. The Production & Income reading fell sharply to -0.32, its lowest point in six months. The Personal Consumption & Housing figure declined to -0.09. The Employment, Unemployment & Hours figure also fell to -0.09, the weakest reading in nine months. The Sales, Orders & Inventories figure was fairly steady at -0.01. The Fed reported that 28 of the 85 component series made positive contributions to the total while 57 made negative contributions.

The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

The Chicago Federal Reserve figures are available in Haver's SURVEYS database.