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Economy in Brief

Philadelphia Fed Factory Business Outlook Survey Indicates Growth
by Tom Moeller  October 20, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index remained positive in October. At 9.7, it was third consecutive positive reading, and followed an unrevised 12.8 in September. It was improved versus December's low of -10.2. The reading compared to expectations for 6.3 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index, constructed by Haver Analytics increased to 49.8 this month, the highest level since March. 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 jumped to its highest level since March, while shipments turned positive. Unfilled orders, delivery times and inventories improved as well.

The employment component increased to the highest level since May. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing sector payrolls.

Prices paid and prices received both deteriorated, and reversed improvement during Q3 and Q2.

The future business activity index eased m/m, but remained in an upward trend. Orders and shipments improved, but employment was little changed at the highest level since February of last year.

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) Oct Sep Aug Oct'15 2015 2014 2013
General Factory Sector Business Conditions 9.7 12.8 2.0 -5.9 3.6 18.3 6.1
ISM-Adjusted Business Conditions 49.8 43.7 45.4 44.7 49.4 53.7 50.0
  New Orders 16.3 1.4 -7.2 -9.3 2.9 14.9 7.2
  Shipments 15.3 -8.8 8.4 -5.3 3.0 16.1 6.8
  Unfilled Orders -0.7 -10.8 -15.0 -11.7 -5.1 3.3 -3.9
  Delivery Time -0.3 -9.3 -3.8 -5.0 -6.4 0.6 -4.1
  Inventories -12.8 -26.2 -9.2 -16.4 -1.5 1.7 -3.5
  Number of Employees -4.0 -5.3 -20.0 -2.8 3.9 10.5 1.4
  Prices Paid 7.0 20.6 19.7 -3.2 1.5 21.6 16.4
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