The latest report from the Philadelphia Federal Reserve Bank continued to paint a bleak picture of the U.S. economy. The bank reported that its November Index of General Business conditions in the manufacturing sector was even more negative at -39.3 than it was last month at -37.5. The latest was lowest level since the recession of 1990. A reading of -35 had been expected for this month.

During the last ten years there has been a 61% 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 43% correlation with q/q growth in real GDP.

The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub-indexes. The business conditions index reflects a separate survey question.

Amongst the sub-indexes, the new orders index again led this month's weakness with a reading of -31.4, the lowest level since the recession of 1990. The shipments index was unchanged m/m following its 21.4 point October decline.

The employment index fell another 7.2 points to the lowest level since the recession year of 2001. Thirty eight percent of respondents expected to reduce employment levels, the highest since 1981, while only 12.6% expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.

The prices paid index fell to a record low with a 37.9 point drop month-to-month to 30.7. During the last ten years there has been a 67% 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.

The separate index of expected business conditions in six months also fell further to near its lowest level since 2001. The expectations index for new orders fell further into negative territory. The expectations index for employment fell to near its record low while the expected prices paid figure fell to its record low.

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