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Economy in Brief


Philadelphia Fed Index Increases With Shorter Delivery Speeds & Higher Prices
by Tom Moeller March 19, 2010

You'd think the economy was on the cusp of overheating. But seriously, the Philadelphia Federal Reserve Bank indicated yesterday that its index of regional factory sector activity improved this month to the second highest level since early-2005. At 18.9 the index slightly exceeded Consensus expectations and has been positive since the summer. The latest figure compared to those near -40.0 this past fall and winter.

During the last ten years there has been a 75% 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 73% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found here.

A slowing of vendor delivery speeds, a lengthened employee workweek and higher prices provided the lift behind the general activity index. These gains may, however, reflect harsh winter weather. Amongst other components, new orders fell sharply and reversed much of the February improvement. Inventories also ran off at a quickened rate but the employment series improved to its highest since 2007. During the last ten years, there has been a 90% correlation between the index level and the three-month change in manufacturing sector payrolls.

The prices paid index rose to its highest since August 2008 and compares to negative readings one year ago. During the last ten years there has been a 66% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 77% correlation with the change in core intermediate goods prices.

Supporting the notion of a winter-weather effect was the rebound in the separate index of expected business conditions in six months to its highest in nine months. Many of the index subseries rose including new orders and the number of employees. Expected prices paid rose to nearly the highest level in two years and the average workweek lengthened. Expected capital expenditures fell as did unfilled orders.

The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database.

Philadelphia Fed (%) March February January March '09 2009 2008 2007
General Activity Index 18.9 17.6 15.2 -31.4 -7.6 -21.4 5.0
  New Orders 9.3 22.7 3.2 -37.5 -9.7 -14.7 6.9
  Delivery Times 7.9 -2.1 6.6 -28.0 -15.3 -10.6 -6.1
  Number of Employees 8.4 7.4 6.1 -49.8 -23.8 -8.8 6.8
  Inventories -11.0 3.2 -1.6 -52.4 -24.0 -16.7 -3.7
Prices Paid Index 38.6 32.4 33.2 -28.8 -3.9 36.3 26.3
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