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Economy in Brief

Philadelphia Fed Index Jumps To Highest This Year
by Tom Moeller   November 18, 2010

Economic momentum may have picked up. The Philadelphia Federal Reserve Bank indicated that its November index of regional factory sector activity improved greatly to 22.5, its highest level this year. The latest outpaced Consensus expectations for a reading of 5.0 and it compares to readings near -40.0 at the 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.

There was broad-based improvement amongst the index components. Factory sector payroll growth continued unabated and the November index was its highest since August 2007. 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 workweek index improved even more to 10.9 from -6.0 while the shipments and new orders followed with firm gains in positive territory. Some of these increases are due to reduced rate of inventory liquidation as this index rose to -5.9 from -18.6.

The prices paid index also improved to its highest level since May but remained down from the 2008 high. Thirty-eight percent of firms raised prices. 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 jumped to its highest level since March. Expectations for shipments, delivery times (slower), prices received and employment rose.

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

Philadelphia Fed (%) Nov Oct Sept Nov.'09 2009 2008 2007
General Activity Index 22.5 1.0 -0.7 18.8 -7.6 -21.4 5.0
   New Orders 10.4 -5.0 -8.1 13.1 -9.7 -14.7 6.9
   Shipments 16.8 1.4 -7.1 14.5 -8.0 -9.2 9.9
   Delivery Times 2.1 -0.3 -4.1 -9.4 -15.3 -10.6 -6.1
   Number of Employees 13.3 2.4 1.8 -2.2 -23.8 -8.8 6.8
   Inventories -5.9 -18.6 -16.7 -17.4 -24.0 -16.7 -3.7
   Prices Paid Index 34.0 31.5 9.8 22.6 -3.9 36.3 26.3
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