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Economy in Brief

Philadelphia Fed Business Conditions Index Improves
by Tom Moeller  March 17, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index improved during March to 12.4 from an unrevised -2.8 in February. It was the first reading above break-even since August and the highest level since April. The latest reading compared to expectations for -1.1 in the Action Economics Forecast Survey.

The ISM-adjusted General Business Conditions Index constructed by Haver Analytics increased to 51.7 from 44.7. It also was the highest level since April and 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.

As with the Empire State figures reported Tuesday, each of the component series improved. Shipments jumped to 22.1, the highest level since November 2014 while new orders similarly rose to 15.7. Delivery times slowed substantially as the index rose to 0.3, and unfilled orders fell at a substantially reduced rate. The employment index rose to a lesser degree m/m to -1.1 from -5.0. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls. The rate of inventory decumulation also slowed modestly. The length of the average workweek also lengthened significantly.

On the pricing front, the prices paid index showed deflation for a seventh consecutive month. Fourteen percent of respondents paid higher prices, while 15% paid less. The prices received measure deteriorated sharply.

The future business activity index also recovered sharply to the highest level since November. New & unfilled orders both increased sharply along with shipments. Employment improved slightly but hours surged. Expected capital expenditures also rose to the highest level since November.

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) Mar Feb Jan Mar'15 2015 2014 2013
ISM-Adjusted General Business Conditions 51.7 44.7 47.5 50.3 49.4 53.7 50.0
General Factory Sector Business Conditions 12.4 -2.8 -3.5 10.7 3.6 18.3 6.1
  New Orders 15.7 -5.3 -1.4 9.4 2.9 14.9 7.2
  Shipments 22.1 2.5 9.6 3.3 3.0 16.1 6.8
  Unfilled Orders -1.9 -12.7 -8.8 -9.6 -5.1 3.3 -3.9
  Delivery Time 0.3 -16.1 -7.6 -8.7 -4.1 0.6 -4.1
  Inventories -12.7 -17.1 -15.7 1.4 -1.5 1.7 -3.5
  Number of Employees -1.1 -5.0 -1.9 5.7 3.9 10.5 1.4
  Prices Paid -0.9 -2.2 -1.1 1.3 1.5 21.6 16.4
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