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 weak activity this month. The index rose nearly 22 points but remained negative for a second straight month at -4.0. The latest reading was better than the forecast of -11.3.
Here is the summary from the survey:
Manufacturing activity in the region remained weak, according to the firms responding to the May Manufacturing Business Outlook Survey. The current general activity index rose but remained negative. The new orders index turned positive, while the shipments index remained negative and declined further. The employment index rose from a near-zero reading. Both price indexes remained elevated. The firms continued to expect growth over the next six months, and expectations were more 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 turned negative for the first time since December 2023.
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 8.2.
The next chart is an overlay of the General Activity Index and the Future General Activity Index — the outlook six months ahead.
Most Future Indicators Rise Sharply
The diffusion index for future general activity jumped 40 points to 47.2 in May after two months of low readings. Similarly, the future new orders index rose to 49.7, and the future shipments index rose to 51.1. Both future price indexes moved lower but remained elevated. The future employment index rose from -0.6 to 23.0. The future capital expenditures index rose 25 points to 27.0.
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).
