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Economy in Brief

Philadelphia Fed Business Activity Index Increases Further
by Tom Moeller  October 20, 2011

For the second consecutive month, the Philadelphia Federal Reserve Bank's index of regional factory sector improved. The October General Activity index rose to 8.7 from an unrevised -17.5 in September. The figure easily beat Consensus expectations for -9.0. Haver Analytics constructs an ISM-Adjusted reading of the Philadelphia number and it rose to 51.2 from 45.3 in September. During the last ten years there's been a 70% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There's also been a 73% correlation with q/q growth in real GDP.

Improvement amongst the component series was widespread, notably for shipments. New orders, unfilled orders and delivery times also rose but the employment series, along with inventories, fell. During the last ten years, there has been an 86% correlation between the employment index level and the monthly change in manufacturing sector payrolls. The prices paid index also declined. Thirty-one percent of firms paid higher prices while an increased eleven percent paid less. During the last ten years there has been a 72% correlation between the prices paid index and the three-month growth in the intermediate goods PPI.

The separate index of expected business conditions in six months jumped to its highest level since April led by new orders, employment and prices. Expectations for capital expenditures also jumped to its highest level since March.

The survey panel consists of 150 manufacturing companies in Federal Reserve District III (consisting of southeastern PA, southern NJ and Delaware.) The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database. The Consensus expectations figure is available in AS1REPNA.

Philadelphia Fed(%) Oct Sep Aug Oct'10 2010 2009 2008
ISM-Adjusted Current Activity Index 51.2 45.3 42.1 47.8 50.7 41.2 43.2
Current Activity Index 8.7 -17.5 -30.7 1.2 12.1 -7.7 -21.5
  New Orders 7.8 -11.3 -26.8 -3.3 5.4 -9.8 -14.9
  Shipments 13.6 -22.8 -13.9 1.1 8.2 -8.1 -9.2
  Unfilled Orders 3.4 -10.4 -20.9 -8.9 -3.0 -15.3 -17.6
  Delivery Time -0.5 -7.0 -18.1 0.8 0.9 -15.3 -10.6
  Inventories -7.7 10.2 -9.8 -13.6 -5.1 -24.1 -16.7
  Number of Employees 1.4 5.8 -5.2 1.4 4.6 -24.0 -8.8
  Prices Paid 20.0 23.2 12.8 29.5 28.5 -4.0 36.1
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