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Economy in Brief

Philadelphia Fed Business Conditions Index Indicates Modest Growth
by Tom Moeller  June 16, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index improved in June to 4.7 from an unrevised -1.8 in May. Despite the moderate reading, it remained up from December's low of -10.2. The increase compared to expectations for 0.7 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics eased to 46.0 from 47.6, both figures indicating declines in activity. The ISM-Adjusted headline index is the average of five diffusion indexes, new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each). This figure 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.

Improvement in Philadelphia Fed index was similar to the Empire State reading, released yesterday. Amongst the components, only the delivery time, employee workweek and prices paid series increased. Elsewhere, the new orders and shipments indexes declined, followed by unfilled orders and inventories. Employment similarly fell and reversed half of its May rise. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls.

On the pricing front, the prices paid index rose to the highest level since July 2014. Twenty-seven percent of respondents paid higher prices, while four percent paid less. Conversely, the prices received measure retreated to the lowest level in three months.

The future business activity index declined for the second consecutive month. New orders, shipments & employment each weakened, along with the workweek & capital spending.

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 Action Economics figure is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Jun May Apr Jun'15 2015 2014 2013
ISM-Adjusted General Business Conditions 46.0 47.6 43.1 51.3 49.4 53.7 50.0
General Factory Sector Business Conditions 4.7 -1.8 -1.6 8.1 3.6 18.3 6.1
  New Orders -3.0 -1.9 0.0 9.6 2.9 14.9 7.2
  Shipments -2.1 -0.5 -10.8 9.3 3.0 16.1 6.8
  Unfilled Orders -12.6 -8.8 -6.3 -0.8 -5.1 3.3 -3.9
  Delivery Time -8.3 -14.6 -9.9 -3.6 -6.4 0.6 -4.1
  Inventories -9.9 -2.5 -20.5 2.4 -1.5 1.7 -3.5
  Number of Employees -10.9 -3.3 -18.5 5.4 3.9 10.5 1.4
  Prices Paid 23.0 15.7 13.2 12.0 1.5 21.6 16.4
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