Philadelphia Fed: Manufacturing Activity Moderates but Remains Positive

Manufacturing activity in the Philadelphia region continued to expand in February, though at a slower pace compared to January. The General Business Activity Index dropped from 44.3 to 18.1, indicating a deceleration but remaining above its long-run non-recession average. Firms reporting increased activity fell from 51% to 41%, while those citing declines rose from 7% to 23%.

Key Business Indicators

New Orders: Declined sharply from 42.9 to 21.9, signaling weaker demand.

Shipments: Fell from 41.0 to 26.3, though still at relatively strong levels.

Unfilled Orders: Dropped significantly from 24.0 to 1.4, suggesting backlogs are being cleared.

Delivery Times: Increased to 12.4 from 6.8, reflecting mild supply chain constraints.

Inventories: Moved into contraction territory at -0.4, down from 11.7, indicating stock reductions.

Employment: Slipped from 11.9 to 5.3, showing slower hiring activity.

Workweek: Declined sharply from 20.5 to 2.9, pointing to softer labor demand.

Future Expectations Show Diminished Optimism

Outlook for the next six months weakened, suggesting caution among businesses:

General Business Activity: Declined from 46.3 to 27.8.

New Orders Expectations: Dropped from 57.3 to 33.1.

Shipments Outlook: Fell from 60.2 to 36.5.

Employment Outlook: Weakened from 40.4 to 23.7, reflecting lower hiring expectations.

Capital Expenditures: Dropped significantly from 39.0 to 14.0, indicating reduced investment plans.

Price Pressures Intensify

Inflation-related data remained a focal point, with price indexes rising:

Prices Paid Index: Climbed from 31.9 to 40.5, the highest level since October 2022, reflecting rising input costs.

Prices Received Index: Increased slightly from 29.7 to 32.9, suggesting firms are passing higher costs to customers.

Special Questions: Inflation and Compensation Trends

Survey respondents provided insights on price and wage expectations:

Firms expect to raise their prices by 3.0% over the next year, unchanged from the previous survey.

Employee compensation is projected to rise by 3.9%, up from 3.4% in November.

Inflation expectations for U.S. consumers remain steady at 3.0% over the next year and decade.

Key Takeaways

Manufacturing growth is slowing, with declines in new orders and shipments signaling weaker demand.

Price pressures are rising, with the Prices Paid Index at a 28-month high, raising concerns about inflation.

Future expectations softened, particularly in hiring and capital spending, suggesting a more cautious business outlook.

Stable inflation expectations but rising compensation costs could contribute to persistent price pressures.

The next Philadelphia Fed survey will be released on March 20, 2025.