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 activity expanded for the first time in four months. The index was rose nearly 20 points to 15.9 in July, the highest level since February. The latest reading was better than the forecast of -1.2.
Here is the summary from the survey:
Manufacturing activity in the region expanded overall this month, according to the firms responding to the July Manufacturing Business Outlook Survey. The survey’s indicator for general activity returned to positive territory, and the indexes for new orders and shipments both increased this month. All three indexes recorded their highest readings since February. The employment index turned positive, suggesting overall increases in employment. Both price indexes rose after declining last month and continue to suggest overall price increases. The future activity indicators suggest that the firms continue to expect growth over the next six months.
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. More 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 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.
Future Indicators Remain Positive
The diffusion index for future general activity ticked up 3 point to 21.5 in July, after declining 29 points in June (see Chart 1). Nearly 41 percent of the firms expect an increase in activity over the next six months, exceeding the 20 percent that expect a decrease; 30 percent expect no change. The future new orders index increased 8 points to 30.0, and the future shipments index decreased 4 points to 23.6. The firms still expect overall increases in employment over the next six months, but the future employment index ticked down 5 points to 20.1. Almost 26 percent of the firms expect increases, while 6 percent expect decreases in future employment; more than 67 percent of the firms expect no change. The index for future capital expenditures increased 3 points to 17.1. Almost 73 percent of the firms expect no change in capital spending.
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).
