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Economy in Brief

Philadelphia Fed Factory Business Outlook Survey Improves
by Tom Moeller  September 15, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index increased in September to 12.8 from an unrevised 2.0 in August. It was the firmest reading since February 2015, and was higher than December's low of -10.2. The reading compared to expectations for 0.8 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics declined to 43.7 this month from 45.4 in August, and continued to indicate declining activity. It was the lowest reading since April. 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 new orders component led the increase in the total. The prices received and unfilled orders components also improved. Shipments fell along with delivery times and inventories.

The employment component rebounded to the highest level in three months. 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 deteriorated m/m, but remained in an upward trend. Lower orders and shipments prompted the decline , but employment improved.

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) Sep Aug Jul Sep'15 2015 2014 2013
General Factory Sector Business Conditions 12.8 2.0 -2.9 -3.6 3.6 18.3 6.1
ISM-Adjusted Business Conditions 43.7 45.4 49.9 49.8 49.4 53.7 50.0
  New Orders 1.4 -7.2 11.8 8.6 2.9 14.9 7.2
  Shipments -8.8 8.4 6.3 9.3 3.0 16.1 6.8
  Unfilled Orders -10.8 -15.0 1.9 -7.5 -5.1 3.3 -3.9
  Delivery Time -9.3 -3.8 1.3 -2.1 -6.4 0.6 -4.1
  Inventories -26.2 -9.2 -4.3 -2.8 -1.5 1.7 -3.5
  Number of Employees -5.3 -20.0 -1.6 6.1 3.9 10.5 1.4
  Prices Paid 20.6 19.7 9.9 -3.1 1.5 21.6 16.4
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