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 fell into negative territory for the first time since January as manufacturing activity softened overall. In August, the index dropped to -7.0 from 13.9 in July, coming in below the forecast of 5.4.
Here is the introduction from the survey:
Manufacturing activity in the region softened overall, according to the firms responding to the August Manufacturing Business Outlook Survey. The survey’s indicators for current general activity, new orders, and shipments all declined, with the former turning negative. The employment index suggests declines in employment overall. Both price indexes indicate overall increases in prices and remain near their long-run averages. The firms continue to expect growth over the next six months, but expectations were less widespread this month.
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 remained in positive territory for a 5th straight month. However, from June 2022 to January 2024 the index had 18 months of negative readings, which more closely resembled 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. The six-month outlook decreased to 15.4.
Most Future Indicators Decline
The diffusion index for future general activity declined from 38.7 to 15.4 in August, mostly offsetting its increase from last month (see Chart). The share of firms expecting increases in activity over the next six months (37 percent) exceeded the share expecting decreases (21 percent); 37 percent expect no change. The future new orders and shipments indexes both fell 21 points, to 10.4 and 9.8, respectively. Expectations for overall increases in employment over the next six months were positive but less widespread, as the future employment index fell from 23.8 to 7.4. The future capital expenditures index moved up 5 points to 12.0.
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).
