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Economy in Brief

Philadelphia Fed Business Conditions Index Rebounds; Nears 1993 High
by Tom Moeller  November 20, 2014

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for November jumped to 40.8 from 20.7 in October. The figure was the highest since December 1993 and surpassed expectations for 18.3 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, jumped to 59.5, the highest level since July, 2004. It is comparable to the ISM Composite index. During the last ten years, there has been a 71% correlation between the adjusted Philadelphia Fed index and real GDP growth.

The new orders and shipment components led the way upward, followed by the delivery time and employment indicators. This latter series rose to its highest level since May, 2011. During the last ten years there has been a 79% correlation between the employment index level and the m/m change in factory sector employment. Weakening m/m were unfilled orders and inventories.

Pricing power weakened sharply to its lowest level since April. A lessened 21 percent of respondents paid higher prices while a higher 4 percent paid less. During the last ten years, there has been a 71% correlation between the prices paid index and three-month growth in the intermediate goods PPI.

The separate index of expected business conditions in twelve months improved to the highest level in three months. Movement amongst the component series was mixed.

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 ISM adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes, new orders, production, employment, supplier deliveries and inventories with equal weights (20% each). Each diffusion index is the sum of the percent responding "higher" and one-half of the percent responding "same."

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 (%, SA) Nov Oct Sep Nov'13 2013 2012 2011
ISM-Adjusted General Business Conditions 59.5 55.6 56.0 53.4 50.0 47.8 52.0
General Factory Sector Business Conditions 40.8 20.7 22.5 9.2 6.4 -0.2 7.7
  New Orders 35.7 17.3 15.5 14.0 7.3 -0.1 7.2
  Shipments 31.9 16.6 21.6 7.8 7.1 -1.3 9.9
  Unfilled Orders 7.1 11.6 5.0 -4.6 -3.8 -6.5 -0.9
  Delivery Time 5.8 0.6 3.8 0.7 -4.0 -9.1 -0.4
  Inventories 10.0 14.8 6.1 13.9 -3.2 -6.0 -0.3
  Number of Employees 22.4 12.1 21.2 2.2 1.5 0.1 11.0
  Prices Paid 17.3 27.6 27.0 25.4 16.7 17.7 39.3
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