The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector dipped in October. The decline to 6.8 followed a great improvement in September to 10.9.

During the last ten years there has been a 59% 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 42% correlation with q/q growth in real GDP.

Fewer new orders and shipments seemed to account for much of the overall decline in the general index while employment improved. During the last ten years there has been a 75% 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 prices paid index improved to its highest level since August of last year. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.

Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found here.