The Philadelphia Federal Reserve's manufacturing activity index fell sharply to -0.4 in May, dramatically missing the consensus forecast of +18.0. The prior month's reading stood at +26.7, making the drop one of the most significant month-over-month swings in recent readings.
Details of the May report:
New orders: -1.7 vs 33.0 prior
Shipments: 4.9 vs 34.0 prior
Unfilled orders: -2.5 vs -10.2 prior
Delivery times: -10.4 vs 1.7 prior
Inventories: 6.6 vs -1.9 prior
Prices paid: 47.9 vs 59.3 prior
Prices received: 26.3 vs 33.5 prior
Number of employees: -2.8 vs -5.1 prior
Average employee workweek: 1.2 vs 7.7 prior
Six-month forward-looking indicators:
6-month index: 53.2 vs 40.8 prior
Capex index 6-month forward: 30.9 vs 35.2 prior
New orders: 53.5 vs 45.7 prior
Shipments: 45.7 vs 40.8 prior
Unfilled orders: 19.2 vs -4.1 prior
Delivery times: 1.0 vs 2.7 prior
Inventories: 11.8 vs -0.7 prior
Prices paid: 70.0 vs 50.2 prior
Prices received: 60.5 vs 50.2 prior
Number of employees: 31.7 vs 35.9 prior
Average employee workweek: 18.4 vs 30.3 prior
Manufacturing activity in the region weakened overall. The survey's indicators for general activity, new orders, and shipments all fell sharply this month. The employment index ticked up but remained negative, continuing to suggest overall declines in employment. Both price indexes declined this month but remained elevated.
Despite the weak current readings, firms continue to expect overall growth over the next six months, and most future indicators rose this month from already elevated readings.
The Philadelphia Fed Manufacturing Survey is one of the earliest monthly indicators of manufacturing sector health in the United States. Published by the Federal Reserve Bank of Philadelphia, it surveys manufacturers in the Third Federal Reserve District, covering eastern Pennsylvania, southern New Jersey, and Delaware. Readings above zero indicate expanding activity, while readings below zero signal contraction. The survey is closely watched by economists and market participants because it often serves as a leading indicator for the national ISM Manufacturing Index released later each month.
Why it matters
The Philly Fed index is one of the earliest monthly readings on US manufacturing health, so a sharp drop to negative territory is watched closely as an early signal ahead of the national ISM Manufacturing Index released later each month.
A reading below zero indicates contracting manufacturing activity in the region, meaning the May result signals an overall decline rather than expansion in the Third Federal Reserve District.
The survey covers manufacturers across eastern Pennsylvania, southern New Jersey, and Delaware, giving it broad regional reach that economists use to gauge conditions across a significant slice of the US industrial base.
