Philadelphia Fed Index Gains With Strength in Employment

The Philadelphia Federal Reserve Bank indicated that its index of regional factory sector activity rose this month to its highest level since early-2005. At 20.5, the index was unexpectedly strong and positive for the fifth consecutive month. The latest level compared to figures near -40.0 this past fall and winter.

During the last ten years there has been a 77% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 70% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found here.· Amongst the components, the employment index was notably strong as it rose to well above break-even and to the highest level since late-2007. During the last ten years there has been a 91% correlation between the index level and the three-month change in manufacturing sector payrolls. Remaining strong were shipments, the workweek, unfilled orders and the delivery times components. The inventory component also improved significantly from its March low.

The prices paid index rose sharply to its highest level since August of last year and compares to negative readings this past winter and spring. During the last ten years there has been a 71% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.

Expected business conditions in six months deteriorated for the sixth straight month. The December index fell to a still-positive reading of 24.4  but that was well-off the recent high. Many of the index components, especially orders and shipments, were down sharply.· The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.