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 jumped to its highest level since April 2021 as manufacturing activity increased overall. In January, the index rose to 44.3 from -10.9 in December, the largest monthly increase since June 2020. The latest reading was much higher than the forecast of -5.0.
Here is the introduction from the survey:
Manufacturing activity in the region increased overall, according to the firms responding to the January Manufacturing Business Outlook Survey. The survey’s indicators for general activity, new orders, and shipments rose sharply and reached multiyear highs. The employment index moved higher and continues to suggest increasing levels of employment overall. The price indexes indicate overall increases in prices, and both indexes rose above their long-run averages. The survey’s broad indicators for future activity rose, suggesting more widespread expectations for overall 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. 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 13th straight month and now sits at its highest level since May 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 8.2.
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 increased to 46.3 in January.
Most Future Indicators Strengthen Further
The diffusion index for future general activity rose from a revised reading of 33.8 in December to 46.3 in January. Nearly 54 percent of the firms expect an increase in activity over the next six months, exceeding the 7 percent that expect a decrease; 36 percent expect no change. The future new orders index increased 5 points to 57.3, and the future shipments index rose 11 points to 60.2, its highest reading since July 2021. On balance, the firms continue to expect increases in employment over the next six months, and the future employment index rose 8 points to 40.4, its highest reading since December 2021. Both future price indexes were above their long-run averages: The future prices paid index increased 9 points to 67.3, its highest reading since January 2022; the future prices received index edged down 1 point to 53.6. The index for future capital expenditures rose 17 points to 39.0, its highest reading since July 2021.
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).
