The Philadelphia Fed's Index of General Business Conditions in the manufacturing sector fell sharply in September to 2.2 from 17.5, reflecting damage caused by Hurricane Katrina. Consensus expectations had been for a lesser decline to 13.3.

During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.

The sub index measuring new orders was -0.5, negative for the first month in over two years. The shipments index also fell and reversed most of the August rise. The level of 13.2 was down a ton from this year's high of 29.4. The index covering the number of employees halved the August level and fell to 2.7. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.

The business conditions index reflects a separate survey question, not the sub indexes.

The separate index of expected business conditions in six months fell sharply to 7.0 after the August jump to its best level of 2005.

The prices paid index surged and doubled the August level. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it's been 43%.

The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.

The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found here.