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Economy in Brief

Philadelphia Fed Business Conditions Index Strengthens; Prices Jump
by Tom Moeller  June 18, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for June increased to 15.2 from an unrevised 6.7 in May. It was the highest level since December. Expectations averaged 8.0 in the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics rose to 52.0, also its highest level this year. 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 production and new orders components provided the greatest lift to the overall index, followed by the employee workweek, unfilled orders and inventories. Moving lower was the delivery times index, indicating faster delivery speeds. Employment weakened to its lowest point in three months. During the last ten years, there has been an 81% correlation between the employment index level and the m/m change in factory sector employment.

The prices paid index rose sharply to the highest level since October. Twenty one percent of respondents paid higher prices, up m/m from five in May. Four percent paid less, down from nineteen. 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 its highest level since January. Expected shipments, new orders, unfilled orders, delivery times and inventories each gained sharply along with prices paid. Employment improved minimally but the expected average workweek surged.

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) Jun May Apr Jun'14 2014 2013 2012
ISM-Adjusted General Business Conditions 52.0 50.3 50.9 53.9 53.7 50.0 47.8
General Factory Sector Business Conditions 15.2 6.7 7.5 19.6 18.6 6.4 -0.2
  New Orders 15.2 4.0 0.7 14.4 15.0 7.2 -0.1
  Shipments 14.3 1.0 -1.8 17.5 16.4 7.1 -1.3
  Unfilled Orders 3.7 -1.1 -7.1 12.0 3.3 -3.8 -6.5
  Delivery Time -4.6 -3.6 0.5 6.1 0.7 -4.0 -9.1
  Inventories 3.1 -1.8 1.5 -2.4 1.8 -3.4 -6.0
  Number of Employees 3.8 6.7 11.5 11.1 10.6 1.5 0.1
  Prices Paid 17.2 -14.2 -7.5 32.0 21.7 16.6 17.7
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