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 continued expansion though activity declined. In March, the index fell to 12.5 from 18.1 in February, the second consecutive monthly drop. The latest reading was higher than the forecast of 8.8.
Here is the summary from the survey:
Responses to the March Manufacturing Business Outlook Survey suggest regional manufacturing activity expanded overall this month. The indicators for current activity, new orders, and shipments all declined but remained positive. On balance, the firms indicated an increase in employment and continued to report increases in prices. The survey’s broad indicators for future activity suggest less widespread expectations for 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 15th straight month and now sits at its highest level since January 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 8.1.
The next chart is an overlay of the General Activity Index and the Future General Activity Index — the outlook six months ahead. In March, the six-month outlook decreased to 5.6 from 27.8 in February, the lowest level since January 2024 and the largest monthly drop since July 2020.
Expectations for Growth Are Less Widespread
The share of firms expecting increases in activity over the next six months (31 percent) exceeded the share expecting decreases (26 percent); 37 percent expect no change. The future new orders index dropped 31 points to 2.3, its lowest reading since May 2023, and the shipments index fell 25 points to 11.3, its lowest reading since June. The firms continue to expect an overall increase in employment, but the future employment index declined from 23.7 to 17.3. The future capital expenditures index was little changed at 13.4.
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).
