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Economy in Brief

IP Philadelphia Fed Index Suggests Further Economic Slowdown
by Tom Moeller  July 15, 2010

The Philadelphia Federal Reserve Bank indicated that as the third quarter began, the U.S. economy's forward momentum waned. The Bank's July index of regional factory sector activity fell for the second straight month to 5.1, the lowest level since August of last year. The latest was slightly lower than expectations for a reading of 10.0. Nevertheless, it still suggested positive economic growth and compared to readings near -40.0 at the recent recession's weakest.

During the last ten years there has been an 76% 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 78% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found here.

Underlying the deterioration in the General Activity Index were negative readings for new orders and (quicker) delivery times. Shipments also slipped but the employment reading improved to its highest since April. During the last ten years, there has been a 75% correlation between the index level and the three-month change in manufacturing sector payrolls. 

The prices paid index improved slightly m/m but remained well below its April high. During the last ten years there has been a 70% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 81% correlation with the change in core intermediate goods prices.

The separate index of expected business conditions in six months deteriorated sharply to its lowest level since January of last year. Expectations for new orders, shipments and employment fell sharply. However, expected capital expenditures improved m/m but remained well below the February high.

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

Philadelphia Fed (%) July June May July '09 2009 2008 2007
General Activity Index 5.1 8.0 21.4 -8.9 -7.6 -21.4 5.0
New Orders -4.3 9.0 6.1 -5.2 -9.7 -14.7 6.9
Shipments 4.0 14.2 15.8 -12.1 -8.0 -9.2 9.9
Delivery Times -8.1 6.8 -1.2 -12.5 -15.3 -10.6 -6.1
Number of Employees 4.0 -1.5 3.2 -25.9 -23.8 -8.8 6.8
Inventories 4.5 4.6 -7.9 -19.8 -24.0 -16.7 -3.7
Prices Paid Index 13.1 10.0 35.5 -8.7 -3.9 36.3 26.3
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