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Economy in Brief

Philadelphia Fed Business Conditions Index Points To Further Economic Growth
by Tom Moeller  April 17, 2014

The Philadelphia Federal Reserve Bank reported that its General Business Conditions Index for April improved to 16.6. That added to its March improvement into positive territory after a weather-depressed negative reading in February. The latest figure surpassed consensus expectations for 10.0 according to the Action Economics Forecast Survey. The seasonally adjusted figure, constructed by Haver Analytics, also moved above break-even to 52.5. It 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.

Rebounds in the new orders, shipments, unfilled orders and inventories components carried the overall index higher. The employment index also recovered to its highest level in three months. During the last ten years, there has been a 79% correlation between the employment index and the m/m change in nonfarm payrolls. To the downside versus March were the unfilled orders and delivery time series.

Pricing power deteriorated as the prices paid index fell to its lowest level since last May. A lessened 17 percent of respondents paid higher prices and a higher 6 percent paid less. During the last ten years, there has been a 71% correlation between the prices paid index and three-month growth in the intermediate goods PPI.

The separate index of expected business conditions in twelve months fell sharply to its lowest level in a year. Deterioration in the new orders, shipments, inventories, employment and capital expenditures components paced the fall. The future prices paid index improved to the highest level in three months.

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 Consensus expectations figure is available in AS1REPNA.

The Fed's latest Beige Book covering regional economic conditions is available here.

Philadelphia Fed (%, SA) Apr Mar Feb Apr'13 2013 2012 2011
ISM-Adjusted General Business Conditions 52.5 49.7 47.7 46.0 50.0 47.8 52.0
General Business Conditions 16.6 9.0 -6.3 1.0 6.4 -0.2 7.7
  New Orders 14.8 5.7 -5.2 -0.8 7.3 -0.1 7.2
  Shipments 22.7 5.7 -9.9 4.0 7.1 -1.3 9.9
  Unfilled Orders 2.0 2.6 -2.6 -9.6 -3.8 -6.5 -0.9
  Delivery Time -14.3 -2.7 2.9 -12.6 -4.0 -9.1 -0.4
  Inventories -1.5 -6.8 3.6 -22.1 -3.2 -6.0 -0.3
  Number of Employees 6.9 1.7 4.8 -5.6 1.5 0.1 11.0
  Prices Paid 11.3 13.9 14.2 5.0 16.7 17.7 39.3
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