Philly Fed Manufacturing Index: Activity Declines
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 dropped back into negative territory indicating a decline in activity. In September, the index fell to -13.5, coming in below the forecast of -0.7. The six-month outlook remained positive for a fourth consecutive month at 11.1.
Here is the introduction from the survey:
Manufacturing activity in the region declined overall, according to the firms responding to the September Manufacturing Business Outlook Survey. The survey’s indicators for general activity, new orders, and shipments returned to negative territory after turning positive in August. On balance, the firms continued to report a decline in employment. The price indexes remained near long-run averages. Most future activity indicators improved, suggesting more widespread expectations for overall growth over the next six months. (Full Report)
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, while the purple line represents the three-month moving average, 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.
In the latest report the index dropped back into negative territory after turning positive in August. This is the index’s 14th negative reading in the past 16 months, more closely resembling those periods during recessions.
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 8.0.
The next chart is an overlay of the General Activity Index and the Future General Activity Index — the outlook six months ahead.
Future Indicators Rise
The diffusion index for future general activity rose from a reading of 3.9 in August to 11.1 in September (see Chart 1). Nearly 30 percent of the firms expect an increase in activity over the next six months, exceeding the 19 percent that expect a decrease; 45 percent expect no change. The future new orders and future shipments indexes rose to near their long-run averages. The future new orders index increased 7 points to 25.6, and the future shipments index rose 16 points to 30.5. On balance, the firms continued to expect increases in employment over the next six months, but the future employment index declined from a reading of 12.0 to 6.5. Both future price indexes declined but remained somewhat above their long-run averages. The future capital expenditures index rose 12 points to 7.5.
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).
Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions.
This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives
Here are the remaining four monthly manufacturing indicators that we track:
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