U.S. Philly Fed Manufacturing Index Remains in Negative Territory in January

The Philadelphia Federal Reserve Bank reported that overall manufacturing activity in the region continued to decline in January. While the general activity diffusion index increased by 2.2 points, it remained negative at -10.6 in January versus -12.8 in December. A reading of -8.0 had been expected by the Action Economics Forecast Survey. The index has been negative in 18 of the past 20 months. More than 26% of the firms reported decreases, exceeding the 16% reporting increases; 52% of the firms reported no change in current activity. Survey responses were collected from January 8 and January 15.

The headline activity index reflects the answer to a single question. Haver Analytics calculates an ISM-adjusted general business conditions index from five key components using the same methodology as the national ISM index. This calculated index fell to 41.9 in January, its lowest reading since March, from 43.3 in December, remaining below the 50 expansion/contraction mark for the 17th consecutive month and indicating that the manufacturing sector is still reeling from tight monetary policy.

All five of the key sub-indexes posted negative readings in January. The new orders and shipments sub-indexes increased but remained negative. New orders rose 4.2 points to -17.9 while shipments increased by 5.0 points to -6.2. By contrast, unfilled orders fell by 9.6 points to -18.5, its lowest reading since November 2022. Delivery times fell by 9.5 points to -27.6 in January, its lowest reading since 2009 during the global financial crisis. Inventories fell by 10.7 points to -14.6.

Employment indicators both rose in January from December but remained negative. The number of employees index edged up 0.7 point to -1.8. It has been negative in eight of the past nine months. Similar shares of the firms reported decreases (12%) and increases (11%) in employment; most firms (75%) reported steady employment levels. The average workweek index increased by 5.0 points to -0.9, its highest reading since September.

Firms continue to report price increases overall but at a slower pace with most respondents reporting no change. The prices paid diffusion index declined from 24.3 in December to 11.3 in January. More than 16% of the firms reported increases in input prices (down from 32% last month), while 5% reported decreases (down from 8%); 79% reported no change (up from 60% last month). The prices received index declined by 6 points to 6.3 in January. Almost 8% of the firms reported increases in the prices of their own goods, nearly 2% reported decreases, and 87% reported no change.

Firms turned more pessimistic concerning future business conditions with the index of conditions expected in six months falling to -4.0 in January, its first negative reading since last May, from 12.6 in December. Nearly 26% of the firms expect a decrease in activity over the next six months, exceeding the 22% that expect an increase; 43% expect no change. In contrast to other expectations, capital expenditures expectations rebounded to 7.5 in January from -7.5 in December.

The figures from the Philadelphia Federal Reserve dating back to 1968 can be found in Haver’s SURVEYS database. The expectation from the Action Economics Forecast Survey is available in AS1REPNA.