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Economy in Brief

Philadelphia Fed Factory Conditions Plunge
by Tom Moeller  June 21, 2018

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index retreated to 19.9 during June, its lowest level since November 2016. Expectations had been for a reading of 28.9 in the Action Economics Forecast Survey. The number of firms reporting an improvement in business activity declined to 36.6% from 43.2%, while the number reporting a worsening increased to 16.8% from 8.8%. As a diffusion index, readings above zero indicate expansion.

Haver Analytics constructs an ISM-Adjusted General Business Conditions Index. This measure weakened this month to 58.9, the lowest level since February. During the last ten years, there has been a 67% correlation between the quarterly ISM-adjusted Philadelphia Fed Index and quarterly real GDP growth.

The new orders reading more-than-halved to 17.0, while the delivery times index dropped sharply, indicating the quickest product delivery speeds since February. Unfilled orders also fell sharply but shipments improved.

The employment index was little changed at 30.4 and remained near the October 2017 record of 30.7. During the last ten years, there has been an 81% correlation between the index level and the month-to-month change in manufacturing employment. The share of firms reporting a rising level of payrolls eased to 33.5% from the record 36.7% reached in May, and layoffs fell. The average workweek series reversed most of the prior month's improvement.

The prices paid index eased to 51.8, but it still represented firm pricing power. The percent of respondents reporting higher prices slipped to 53.9%, while just 2.0% paid lower prices. The index of prices received declined slightly to 33.2, still near the 29-year high.

The future activity index declined to 34.8, its lowest level in since November 2016. New orders, shipments, delivery times, employment and prices paid decreased.

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, shipments, employment, delivery times 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 dating back to 1968 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) Jun May Apr Jun'17 2017 2016 2015
General Factory Sector Business Conditions 19.9 34.4 23.2 26.9 27.4 4.9 3.7
ISM-Adjusted Business Conditions 58.9 61.6 59.7 57.7 57.2 48.3 49.4
  New Orders 17.9 40.6 18.4 24.8 25.4 4.9 3.0
  Shipments 28.7 25.8 23.9 27.1 26.8 6.9 3.0
  Unfilled Orders -2.7 15.3 7.8 12.9 11.9 -5.6 -5.1
  Delivery Time 9.6 18.5 20.7 12.9 10.6 -4.6 -4.2
  Inventories 10.2 8.1 9.5 5.2 2.8 -9.6 -1.4
  Number of Employees 30.4 30.2 27.1 16.0 16.2 -5.6 3.9
  Average Workweek 24.2 34.4 21.6 18.8 14.9 -5.4 -1.7
  Prices Paid 51.8 52.6 56.4 25.1 30.4 13.5 1.5
Expectations - General Business Conditions; Six Months Ahead 34.8 38.7 40.7 35.3 47.1 33.7 37.6
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