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Economy in Brief

Philadelphia Fed Factory Conditions Index Drops
by Tom Moeller  November 16, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index for November fell to 22.7 after a rise to 27.9 during October. The figure was the lowest in three months and compared to a February high of 43.3. Expectations had been for a reading of 24.1 in the Action Economics Forecast Survey. Thirty-five percent of firms reported an improvement in business activity and twelve percent reported deterioration.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics declined slightly to 57.0 this month. 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 current conditions index reflected mixed performance amongst the component series. The shipments, delivery time and inventory series fell. The new orders and unfilled orders indicators rose.

The employment series backed slightly away from its record high. Twenty-eight percent of respondents raised job levels while five percent lowered them. During the last ten years, there has been a 74% correlation between the jobs index and the m/m change in manufacturing sector payrolls. The average workweek reading fell and has been moving sideways for several months.

The prices paid measure improved to the highest point since March. Thirty-nine of respondents (NSA) reported paying higher prices, while none paid less. The prices received index declined to the lowest level since December.

The index measuring expected business conditions in six months rose slightly, but remained well below its March high. That reflected higher readings for new orders, unfilled orders, shipments, delivery times, inventories, employment and the workweek. The reading of future capital expenditures declined m/m, but remained up sharply y/y.

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) Nov Oct Sep Nov'16 2016 2015 2014
General Factory Sector Business Conditions 22.7 27.9 23.8 8.7 4.8 3.6 18.3
ISM-Adjusted Business Conditions 57.0 59.8 57.9 54.3 48.2 49.4 53.7
  New Orders 21.4 19.6 29.5 15.2 4.9 3.0 14.9
  Shipments 21.7 24.4 37.8 16.6 6.9 3.1 16.3
  Unfilled Orders 17.0 10.9 17.0 3.3 -5.5 -5.1 3.3
  Delivery Time 14.6 21.6 14.5 3.7 -4.6 -4.1 0.6
  Inventories -8.6 6.0 -1.4 12.3 -9.7 -1.5 1.7
  Number of Employees 22.6 30.6 6.6 -4.1 -5.7 3.9 10.5
  Average Workweek 13.7 19.4 11.9 3.5 -5.5 -1.8 3.9
  Prices Paid 39.0 38.1 34.4 27.6 13.5 1.5 21.6
Expectations - General Business Conditions; Six Months Ahead 50.1 46.4 55.2 32.2 33.7 37.4 47
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