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Economy in Brief

Philadelphia Fed Factory Business Outlook Survey Improves
by Tom Moeller  January 19, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index rose to 23.6 during January from December's 19.7. It was the highest level since November 2014. The latest monthly reading compared to expectations for 15.1 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics rose to 55.5 this month, the highest level since November 2014. The ISM-Adjusted headline index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each). 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.

Most component series strengthened this month. New orders jumped to the highest level since July 2014. Inventories equaled the recovery high, and unfilled orders jumped to a recovery high. Delivery times held steady m/m at an elevated level, indicating slower delivery speeds. Shipments eased following sharp increases from the 2016 low.

The employment series jumped to the highest level since April 2015. During the last ten years, there has been an 81% correlation between the jobs index and the m/m change in manufacturing sector payrolls. The average workweek reading eased slightly, but remained up from the negative readings early last year.

Prices paid strengthened to the highest level since July 2011. Prices received also improved sharply.

The future business activity index surged to the highest level since August 2014. The component series exhibited broad-based strength.

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) Jan Dec Nov Jan'16 2016 2015 2014
General Factory Sector Business Conditions 23.6 19.7 8.7 -5.3 4.8 3.6 18.3
ISM-Adjusted Business Conditions 55.5 53.6 54.3 45.6 48.2 49.4 53.7
  New Orders 26.0 14.9 15.2 -2.7 4.9 2.9 14.9
  Shipments 20.5 21.7 16.6 2.3 6.9 3.1 16.3
  Unfilled Orders 10.7 3.6 3.3 -9.4 -5.5 -5.1 3.3
  Delivery Time 5.4 5.4 3.7 -8.4 -4.6 -4.1 0.6
  Inventories 12.2 1.3 12.3 -15.4 -9.7 -1.5 1.7
  Number of Employees 12.8 3.6 -4.1 -3.7 -5.7 3.9 10.5
  Prices Paid 32.5 28.1 27.6 -1.2 13.5 1.5 21.6
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