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Economy in Brief

Philadelphia Fed Factory Conditions Strengthen; Prices Moderate
by Tom Moeller  May 18, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index rebounded to 38.8 during May following an unrevised decline to 22.0 in April. The latest monthly reading compared to expectations for 19.5 in the Action Economics Forecast Survey.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics eased to 58.1 this month, the lowest level in three months. 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.

Improvement in the overall business conditions index was led by the shipments and order backlog series. Offsetting these gains were declines in the new orders, inventories and delivery time indexes.

The employment series eased modestly and reversed its April rise. 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 strengthened to the highest level since March 2004.

Prices paid declined to the lowest level since October. Thirty-one percent of respondents (NSA) reported paying higher prices, while six percent paid less. The prices received index also declined.

The future business activity index weakened to the lowest level in six months. Each of the sub-series fell sharply with the exception of delivery times 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 - Manufacturing Business Outlook Survey (%, SA) May Apr Mar May'16 2016 2015 2014
General Factory Sector Business Conditions 38.8 22.0 32.8 -1.5 4.8 3.6 18.3
ISM-Adjusted Business Conditions 58.1 59.5 60.2 47.7 48.2 49.4 53.7
  New Orders 25.4 27.4 38.6 -1.5 4.9 3.0 14.9
  Shipments 39.1 23.4 32.9 0.1 6.9 3.1 16.3
  Unfilled Orders 9.0 6.6 14.4 -8.2 -5.5 -5.1 3.3
  Delivery Time 6.4 13.2 4.5 -12.0 -4.6 -4.1 0.6
  Inventories 1.4 17.8 11.8 -4.8 -4.8 -1.5 1.7
  Number of Employees 17.3 19.9 17.5 -3.8 -5.7 3.9 10.5
  Prices Paid 24.2 33.7 40.7 13.5 13.5 1.5 21.6
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