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Economy in Brief

Philadelphia Fed Business Conditions Index Deteriorates
by Tom Moeller  April 22, 2016

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index declined during April to -1.6 from an unrevised 12.4 in March. It reversed improvement during the prior two months. The decline compared to expectations for 8.5 in the Action Economics Forecast Survey.

The ISM-adjusted General Business Conditions Index constructed by Haver Analytics fell sharply to 43.1 from 51.7. It was nearly the weakest reading since the economic recovery began in 2009. This figure 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.

Deterioration in Philadelphia Fed index contrasts with improvement in the Empire State reading, released last week. Each of the component series weakened. The shipments index declined to -10.8, the first negative number since December, following sharp improvement in March. New orders similarly fell to neutral after its jump to 15.7. Following modest improvement in March, the employment index collapsed to -18.5 from -1.1, and was the weakest reading since July 2009. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing payrolls. The unfilled orders, delivery times and inventory figures also eroded. The length of the average workweek shortened significantly.

On the pricing front, the prices paid index jumped, showed inflation for the first time since August. Fifteen percent of respondents paid higher prices, while 2% paid less. The prices received measure increased sharply to the highest level since December 2014.

The future business activity index surged to the highest point since January 2015. New & unfilled orders both increased sharply, along with shipments and employment. Expected capital expenditures were little-changed following sharp improvement in March.

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 - Manufacturing Business Outlook Survey (%, SA) Apr Mar Feb Apr'15 2015 2014 2013
ISM-Adjusted General Business Conditions 43.1 51.7 44.7 52.6 49.4 53.7 50.0
General Factory Sector Business Conditions -1.6 12.4 -2.8 10.8 3.6 18.3 6.1
  New Orders 0.0 15.7 -5.3 6.0 2.9 14.9 7.2
  Shipments -10.8 22.1 2.5 3.4 3.0 16.1 6.8
  Unfilled Orders -6.3 -1.9 -12.7 -2.7 -5.1 3.3 -3.9
  Delivery Time -9.9 0.3 -16.1 4.5 -4.1 0.6 -4.1
  Inventories -20.5 -12.7 -17.1 4.1 -1.5 1.7 -3.5
  Number of Employees -18.5 -1.1 -5.0 12.5 3.9 10.5 1.4
  Prices Paid 13.2 -0.9 -2.2 1.3 1.5 21.6 16.4
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