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Economy in Brief

Philadelphia Fed Factory Conditions Declines; Prices Ease
by Tom Moeller  March 15, 2018

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index fell to 22.3 during March and reversed February's rise. Expectations had been for a reading of 23.0 in the Action Economics Forecast Survey. A lessened 37% of firms reported an improvement in business activity while a steady 14% reported a decrease. As a diffusion index, readings above zero indicate expansion.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. This measure strengthened this month to 61.9, the highest level since October 1988. During the last ten years, there has been a 68% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and quarterly real GDP growth

The decline in the composite index was accompanied by improvement in many of the sub-series. New orders, shipments, unfilled orders and inventories each rose sharply. The rise in the vendor delivery index suggested sharply slower product delivery speeds.

The employment index nudged up 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. A strengthened thirty-five percent of respondents reported a rising level of payrolls while nine percent reported a decline. The average workweek series eased slightly and has been moving sideways for a year.

The prices paid index slipped to 42.6, but remained near the highest level since May 2011. Forty-four percent of respondents reported higher prices while one reported lower. The index of prices received declined to the lowest level in three months.

The future activity index improved following declines during the prior two months. Shipments and unfilled orders fell sharply. Employment and prices paid eased, but remained in strong up-trends.

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) Mar Feb Jan Mar'17 2017 2016 2015
General Factory Sector Business Conditions 22.3 25.8 22.2 31.6 27.4 4.8 3.7
ISM-Adjusted Business Conditions 61.9 56.6 56.5 59.7 57.2 48.2 49.4
  New Orders 35.7 24.5 10.1 37.4 25.4 4.9 3.0
  Shipments 32.4 15.5 30.3 33.2 26.8 6.9 3.1
  Unfilled Orders 20.1 14.5 -1.8 13.1 11.9 -5.6 -5.1
  Delivery Time 14.0 4.5 6.1 5.5 10.6 -4.6 -4.2
  Inventories 16.5 -0.9 9.4 9.9 2.8 -9.6 -1.4
  Number of Employees 25.6 25.2 16.8 15.8 16.2 -5.6 3.9
  Average Workweek 12.8 13.7 16.7 17.7 14.9 -5.4 -1.7
  Prices Paid 42.6 45.0 32.9 38.6 30.4 13.5 1.5
Expectations - General Business Conditions; Six Months Ahead 47.9 41.2 42.2 57.6 47.1 33.7 37.6
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