The Philly Fed's Manufacturing Business Outlook Survey is a monthly survey of about 250 manufacturers in the Third Federal Reserve District, which covers eastern Pennsylvania, southern New Jersey, and Delaware. Participants of the survey indicate the relative level of general business conditions in the region. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. While it focuses exclusively on business in this district, this regional survey gives a reliable direction of the broader Chicago Fed's National Activity Index.
The latest Philadelphia Fed manufacturing index showed continued expansion though activity declined. In February, the index fell to 18.1 from 44.3 in January, the largest monthly drop since 2020. The latest reading was lower than the forecast of 19.4.
Here is the introduction from the survey:
Manufacturing activity in the region continued to expand, according to the firms responding to the February Manufacturing Business Outlook Survey. Although the survey’s indicators for current general activity, new orders, and shipments declined, readings remain elevated. The employment index declined but remained positive. Both price indexes rose and remain above their long-run averages. The firms continue to expect growth over the next six months, although expectations were less widespread.
The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the three 21st century recessions. The green dots show the indicator itself, which is quite noisy. Therefore, we've included the three-month moving average (purple line), which is more useful as an indicator of coincident economic activity. We can see longer and deeper periods of contraction during each of the recessions with shallower contractions in '02, '03, '11, '12, '13, and '15. Most recently, the index's 3-month moving average contracted from July 2022 to December 2023 however no recession was called during that time.
In the latest report the 3-month moving average remained in positive territory for a 14th straight month and now sits at its highest level since April 2022.
In the next chart, we see the complete series, which dates from May 1960. For proof of the high volatility of the headline indicator, note that the average absolute monthly change across this data series is 8.1.
The next chart is an overlay of the General Activity Index and the Future General Activity Index — the outlook six months ahead. In February, the six-month outlook decreased to 27.8 from 46.3 in January.
Firms Continue to Expect Future Growth
The diffusion index for future general activity declined from 46.3 to 27.8 in February. The future new orders and shipments indexes both declined 24 points, to 33.1 and 36.5, respectively. The future prices paid index declined from 67.3 to 58.6, and the future prices received index declined from 53.6 to 46.1. The firms continue to expect overall increases in employment, but the future employment index fell from 40.4 to 23.7. The future capital expenditures index fell 25 points to 14.0, its lowest reading since August. Most firms (72 percent) expect steady capital expenditures, 21 percent expect increases, and 6 percent expect decreases.
For comparison, here is the latest ISM Manufacturing survey.
Let's compare all five Regional Manufacturing indicators. Here is a three-month moving average overlay of each since 2004 (for those with data).
