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Economy in Brief

Philadelphia Fed Business Conditions Survey Recovers
by Tom Moeller  August 18, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index improved in August to 2.0 from an unrevised -2.9 in July. This latest positive reading compares with negative figures throughout most of the year, and was higher than December's low of -10.2. The reading compared to expectations for 1.5 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics declined to 45.4 this month from 49.9 in July, and both readings continued to indicate declining 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.

The rise in the Philadelphia Fed index contrasts to the decline in the Empire State reading, released Monday. The shipments component and the prices paid series improved, while new & unfilled orders, delivery times and inventories deteriorated.

The employment component dropped sharply to the lowest level of the economic expansion. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing sector payrolls.

The future business activity index improved sharply for the second straight month. Higher shipments, new orders and capital expenditures prompted the rise.

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) Aug Jul Jun Aug'15 2015 2014 2013
General Factory Sector Business Conditions 2.0 -2.9 4.7 3.4 3.6 18.3 6.1
ISM-Adjusted Business Conditions 45.4 49.9 46.0 51.2 49.4 53.7 50.0
  New Orders -7.2 11.8 -3.0 2.5 2.9 14.9 7.2
  Shipments 8.4 6.3 -2.1 11.0 3.0 16.1 6.8
  Unfilled Orders -15.0 1.9 -12.6 -3.4 -5.1 3.3 -3.9
  Delivery Time -3.8 1.3 -8.3 -2.2 -6.4 0.6 -4.1
  Inventories -9.2 -4.3 -9.9 -1.9 -1.5 1.7 -3.5
  Number of Employees -20.0 -1.6 -10.9 5.3 3.9 10.5 1.4
  Prices Paid 19.7 9.9 23.0 3.8 1.5 21.6 16.4
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