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Economy in Brief

Philadelphia Fed Business Conditions Index Backpedals
by Tom Moeller  September 17, 2015

The Philadelphia Federal Reserve Bank reported that its General Factory Sector Business Conditions Index for September deteriorated to -6.0 following an unrevised improvement to 8.3 in August. It was the first negative reading since February of 2014. Expectations were for +6.0 in the Action Economics Forecast Survey. The seasonally adjusted figure constructed by Haver Analytics declined to 51.0 following its improvement to 52.6 in August. 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 components of the overall index were mixed this month with shipments, unfilled orders and inventories each deteriorating m/m. The employment measure, however, improved to its highest point since April. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls. The new orders and delivery time series also improved, the latter showing the slowest product delivery speeds since April.

On the pricing front, the prices paid index deteriorated to its lowest reading since May. Sixteen percent of respondents, up from 13%, paid higher prices, while 15% paid less, up from 7%. The prices received measure eased along with expected prices.

The future business activity index improved to its highest level since January led by shipments, delivery times, the average workweek and capital expenditures. All other component series eased.

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) Sep Aug Jul Sep'14 2014 2013 2012
ISM-Adjusted General Business Conditions 51.0 52.6 49.2 55.3 53.7 50.0 47.8
General Factory Sector Business Conditions -6.0 8.3 5.7 18.6 18.6 6.4 -0.2
  New Orders 9.4 5.8 7.1 13.1 15.0 7.2 -0.1
  Shipments 14.8 16.7 4.4 20.0 16.4 7.1 -1.3
  Unfilled Orders -6.6 -1.0 -6.3 3.7 3.3 -3.8 -6.5
  Delivery Time 0.5 -0.4 -4.5 3.0 0.7 -4.0 -9.1
  Inventories -2.7 0.2 -5.7 6.0 1.8 -3.4 -6.0
  Number of Employees 10.2 5.3 -0.4 19.5 10.6 1.5 0.1
  Prices Paid 0.5 6.2 20.2 24.4 21.7 16.6 17.7
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