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Economy in Brief

Philadelphia Fed Factory Conditions Improve; Prices Jump
by Tom Moeller  February 15, 2018

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index increased to 25.8 during February and made up most of January's decline to 22.2. Expectations had been for a reading of 21.6 in the Action Economics Forecast Survey. An improved 41% of firms reported an improvement in business activity while 15% reported a decrease. As a diffusion index, readings above zero indicate expansion.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. This measure was fairly steady this month at 56.6. During the last ten years, there has been a 68% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and quarterly real GDP growth.

Improvement in February was led by a higher new and unfilled orders indexes. Countering these increases were declines in the shipments, inventories and delivery times series.

The employment index rose to the highest level since October. During the last ten years, there has been an 80% correlation between the index level and the m/m change in payroll employment. Thirty percent of respondents reported a rising level of payrolls while five percent reported a decline. The average workweek series eased slightly and has been moving sideways for a year.

The prices paid index increased sharply to 45.0, the highest level since May 2011 and up from -13.2 in May 2015. Forty-six percent of respondents reported higher prices received while one reported lower. The index of prices received eased slightly, but remained near its twelve-month high.

The future activity index declined to its lowest level since July. New orders and shipments rose slightly, while employment strengthened to the highest level since 1983.

The survey panel consists of 150 manufacturing companies in the third Federal Reserve District (which consists 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 ISM-adjusted 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 expectation from the Action Economics Forecast Survey is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Feb Jan Dec Feb'17 2017 2016 2015
General Factory Sector Business Conditions 25.8 22.2 27.9 35.3 27.4 4.8 3.7
ISM-Adjusted Business Conditions 56.6 56.5 57.5 55.5 57.2 48.2 49.4
  New Orders 24.5 10.1 28.2 31.2 25.4 4.9 3.0
  Shipments 15.5 30.3 23.9 27.1 26.8 6.9 3.1
  Unfilled Orders 14.5 -1.8 12.8 9.9 11.9 -5.6 -5.1
  Delivery Time 4.5 6.1 11.0 4.5 10.6 -4.6 -4.2
  Inventories -0.9 9.4 -1.1 -4.2 2.8 -9.6 -1.4
  Number of Employees 25.2 16.8 19.7 10.3 16.2 -5.6 3.9
  Average Workweek 13.7 16.7 12.6 12.3 14.9 -5.4 -1.7
  Prices Paid 45.0 32.9 27.8 30.0 30.4 13.5 1.5
Expectations - General Business Conditions; Six Months Ahead 41.2 42.2 52.7 51.1 47.1 33.7 37.6
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