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Economy in Brief

Philadelphia Fed Factory Conditions Index Eases
by Tom Moeller  August 17, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index slipped to 18.9 during August, furthering its July decline to 19.5. It was the lowest reading since November. The figure compared to expectations for 18.0 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics rose to 55.2 this month, but remained sharply below the March high. 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 decline in the overall index reflected mixed movement in the component series. New orders, shipments and the employee workweek improved sharply. The unfilled orders and the delivery time indexes also increased. The inventory index declined.

The employment series fell to the lowest level since December. 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 average workweek reading recovered most of its July decline.

Prices paid rose modestly. Twenty-four percent of respondents (NSA) reported paying higher prices, while three percent paid less. The prices received index improved but remained well below January's high.

The future business activity index improved to the highest level since April. All of the sub-series increased m/m except prices paid and capital expenditures.

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'16 2016 2015 2014
General Factory Sector Business Conditions 18.9 19.5 27.6 4.3 4.8 3.6 18.3
ISM-Adjusted Business Conditions 55.2 52.5 57.9 46.1 48.2 49.4 53.7
  New Orders 20.4 2.1 25.9 -3.4 4.9 3.0 14.9
  Shipments 29.4 12.2 28.5 8.7 6.9 3.1 16.3
  Unfilled Orders 14.5 7.2 14.0 -10.8 -5.5 -5.1 3.3
  Delivery Time 10.5 7.4 13.9 -3.8 -4.6 -4.1 0.6
  Inventories -6.1 0.7 5.8 -9.6 -9.7 -1.5 1.7
  Number of Employees 10.1 10.9 16.1 -17.7 -5.7 3.9 10.5
   Average Workweek 18.8 3.8 20.5 -9.2 -5.5 -1.8 3.9
  Prices Paid 21.1 19.1 23.6 18.7 13.5 1.5 21.6
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