Philly Fed Manufacturing Index Jumps in July

The Federal Reserve Bank of Philadelphia reported in its July survey of manufacturing activity that the Current Activity Diffusion Index jumped up to 13.9 from 1.3 in June. The Action Economics Forecast Survey had anticipated a modest increase to 2.9. The survey responses were collected from July 8 to July 15. Nearly 39% of the firms reported increases in general activity this month (versus 24% in June), while 25% reported decreases (up from 23%); 29% reported no change (down markedly from 50% in June).

The headline index reflects the answer to a single question on the state of economic activity. Haver Analytics calculates a composite index along the lines of the ISM PMI. That calculated index surged to 54.9 in July from 47.0 in June. This was the first time this index has been above the critical 50 level that separates expansion from contraction since August 2022, indicating a relatively broadly based expansion of activity in the Philly Fed district in July.

The rebound in the headline index was relatively widespread. The new orders subindex jumped up to 20.7 in Jully after having been in negative territory in each of the previous two months. This was the highest reading since March 2022 with 42.2% of respondents reporting an increase in orders (versus 22.9% in June). The shipments subindex surged to 27.8, the highest reading since May 2022, from -7.2 in June. Forty percent of respondents reported an increase in shipments in July versus 15.6% in June. The unfilled orders subindex edged up to 9.1 from 8.9. The delivery times subindex jumped to 8.5 in July, its first time in positive territory since August 2022, from -9.4 in June.

On balance, the firms reported an increase in employment for the first time since last October. The employment index rose nearly 18 points to 15.2 in July, its highest reading since October 2022. Twenty-eight percent of the firms reported an increase in employment, while almost 13% reported a decrease; 58% reported no change. The average workweek index fell more than 6 points to -1.6.

While firms reported increases in prices on balance in July, most firms continued to report no change in prices. The prices paid index edged down nearly 3 points to 19.8. Almost 26% of the firms reported increases in input prices (about the same as in June), while 6% reported decreases; 65% reported no change. The current prices received index jumped almost 11 points to 24.2, its highest reading since January 2023. One-quarter of the firms reported increases in the prices of their own goods (up from 14% last month), while only 1% reported decreases (up from 0%); 68% reported no change (down from 86%).

Expectations for business conditions in the next six months improved markedly in July with the headline expectations index rising to 38.7, its highest reading since July 2021, from 13.8 in June. The July jump was led by surges in new order expectations (31.3 vs. 16.2 in June) and shipments expectations (31.0 vs. -0.1 in June). Employment expectations also rose though more modestly to 23.8 in July from 19.0.

The indexes in this report are diffusion indexes and measure 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 figure is from the Action Economics Forecast Survey in AS1REPNA.