Philadelphia Fed Manufacturing Survey Still Negative in May, but Less Weak than in April

The Philadelphia Federal Reserve Bank reported that its monthly survey of manufacturers saw its Current Activity Diffusion Index at -10.4% in May, an improvement from the -31.3% reading in April. While obviously still negative, the monthly move was sizable and even larger than the expectation of a move to -20.0% in the Action Economics Forecast Survey. The Philly Fed survey responses were collected from May 8 to May 15.

The ISM-Adjusted Composite Index, calculated by Haver Analytics from the survey results, was 46.4 in May, up from 42.2 in April. The May result still showed net contraction in activity, but was less weak than the April value.

Changes in the component series were mixed. New orders were still negative, at -8.9%, but less so than April’s -22.7%. In May, 27.4% of respondents reported an increase in new orders while 33.6% had no change in new orders and 36.3% had decreasing new order amounts. Shipments had a relative improvement, with a 4.7% net decline, representing an increase at 21.4% of respondent versus a decrease at 26.1%. These compare to increasing shipments in April at 20.4% of companies and a decrease at 27.7%. Unfilled orders actually had a slightly positive reading in May, 0.8%, up from -11.1% in April; the May result was the first positive reading since May 2022. Inventories turned back positive in the May data, at +6.4% versus -17.9% in April; the share of companies with increases was 18.5% in May after just 2.9% in April, while the share with decreasing inventories was 12.1% in May, less than April’s 20.8%.

Employment conditions remained negative in May, at -8.6% after April’s marginal -0.2%. The number of employees increased at 6.6% of firms in May while they decreased at 15.1%.

Prices paid were slightly stronger in May, at a net of 10.9% after April’s 8.2%. This was composed of increases at 25.5% of respondents and decreases at 14.6%. In April, prices paid had risen at a relatively moderate 18.5% of firms, the smallest since mid-2020, and they declined in April at 10.3%.

Prices received in May had the weakest net reading since the pandemic era in the spring of 2020, as they registered a net index of -7.0%. This reflected the largest share of firms with price reductions, 22.0%, since 25.4% in July 2009. Prices had fallen at just 10.4% of firms in April 2023. Prices rose in May at 14.9% of firms after rising in April at 7.1% of firms.

Expectations for business conditions in the next six months had a -10.3% May reading, notably weaker than April’s -1.5%. The May survey showed weaker net expectations for new orders, at -2.3% after +9.8% in April, shipments at +4.5% after +13.3% and delivery times at -31.0% after -28.1%. Readings in the May survey for expectations of the number of employees were stronger, though, at +12.6% after +3.8% in April and there were also firmer readings for both prices paid and prices received.

The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The Philadelphia Fed data can be found in Haver's SURVEYS database. The expectations forecast figures are from the Action Economics Forecast Survey in AS1REPNA.