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Economy in Brief

Philadelphia Fed Business Conditions Index Is Negative
by Tom Moeller  February 18, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index for February remained negative at -2.8 versus -3.5 in January. It was the sixth consecutive reading below zero, although losses have moderated since December. The latest reading matched expectations in the Action Economics Forecast Survey.

The ISM-adjusted General Business Conditions Index constructed by Haver Analytics deteriorated to 44.7 from 47.5. It remained below 50 for the seventh month in the last eight. 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.

Each of the components of the overall index deteriorated versus January. New orders and unfilled orders both fell sharply m/m, while shipments showed a slower rate of increase. The vendor delivery index became more negative, continuing to suggest faster delivery speeds, and inventories fell. The employment measure remained negative for a second month. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls. The length of the average workweek shortened substantially.

On the pricing front, the prices paid index showed deflation for a sixth consecutive month. Nineteen percent of respondents paid higher prices, while 21% paid less. The prices received measure remained negative.

The future business activity index deteriorated sharply to its lowest level since November 2012. Expected new orders, shipments and unfilled orders fell significantly. Employment also deteriorated, along with capital expenditures and prices paid.

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 (%, SA) Feb Jan Dec Feb'15 2015 2014 2013
ISM-Adjusted General Business Conditions 44.7 47.5 45.2 52.1 49.4 53.7 50.0
General Factory Sector Business Conditions -2.8 -3.5 -10.2 13.0 3.6 18.3 6.1
  New Orders -5.3 -1.4 -11.1 7.7 2.9 14.9 7.2
  Shipments 2.5 9.6 -2.1 8.2 3.0 16.1 6.8
  Unfilled Orders -12.7 -8.8 -17.6 8.5 -5.1 3.3 -3.9
  Delivery Time -16.1 -7.6 -6.1 -3.3 -4.1 0.6 -4.1
  Inventories -17.1 -15.7 -5.7 13.0 -1.5 1.7 -3.5
  Number of Employees -5.0 -1.9 2.2 5.7 3.9 10.5 1.4
  Prices Paid -2.2 -1.1 -8.3 6.6 1.5 21.6 16.4
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