Philadelphia Fed Factory Index Slips to 37.8 as Regional Manufacturing Continues to Expand

Manufacturing activity in the Philadelphia Federal Reserve’s region cooled in September but continued to expand at a solid pace, with the survey’s headline current general activity index falling to 37.8 from 47.4 in August.

The pullback still left the index comfortably in positive territory, indicating that more manufacturers reported improving conditions than worsening ones. The September reading also came with continued strength in new orders and shipments, a positive employment reading, and higher price indexes, keeping the report consistent with ongoing factory-sector growth rather than a reversal in direction.

Headline activity eased from August but stayed firmly positive

The Philadelphia Fed’s September Manufacturing Business Outlook Survey said the current general activity index declined by 9.6 points to 37.8. Even with that drop, the measure remained elevated by historical standards. Equal shares of respondents, 45 percent, reported either increased activity or no change, while just 8 percent reported declines.

The report showed only modest softening in demand and output measures. The new orders index slipped 1 point to 29.2, with just over 44 percent of firms reporting increases and 15 percent reporting decreases. The shipments index held steady at 27.7, suggesting factory output remained on a healthy footing through the month.

September’s report fits the pattern the survey described in its summary: expansion continued, but the pace was not as hot as August. Because the Philadelphia Fed diffusion indexes are based on the share of firms reporting increases minus the share reporting decreases, a lower positive reading does not mean contraction. It means growth was still broad, though less intense than in the prior month.

That distinction matters for the headline number. A slip from 47.4 to 37.8 can sound sharp in isolation, but both readings signal growth. The September figure is still substantially above zero, the threshold that separates net expansion from net contraction in this survey.

Hiring remained positive as price measures reaccelerated

Labor market signals were softer than in August, though they continued to point to overall hiring. The employment index fell 16 points to 11.8, mostly unwinding the previous month’s jump. More than 17 percent of firms reported increases in employment, compared with 6 percent reporting decreases, while 77 percent said staffing levels were unchanged.

The average employee workweek index also moved lower, dropping to 18.0 from 26.5. Even so, the Philadelphia Fed described the workweek measure as marking a third consecutive month of elevated readings, which suggests labor demand did not disappear along with the moderation in the headline and employment gauges.

Price indicators moved the other way. The prices paid index climbed 8 points to 48.6 after a large decline in August. About 51 percent of firms reported higher input prices, while just 2 percent reported decreases. The prices received index rose 14 points to 31.3, its highest reading since April, with roughly one-third of firms saying they raised prices for their own goods.

That mix of continued expansion and firmer price readings will likely keep the report relevant beyond regional factory conditions alone. Investors and economists often watch the Philadelphia Fed survey for early signals on nationwide manufacturing momentum and pipeline inflation pressure, especially because it arrives ahead of some broader factory data.

Quarterly production improved, but firms still cited constraints

September’s special questions added more context to the headline readings. When firms were asked how third-quarter production compared with the second quarter of 2026, 68 percent reported an increase and 16 percent reported a decrease. That indicates that production growth in the quarter was more common than decline among respondents.

Capacity utilization, however, looked steady rather than stretched. The median current utilization rate was unchanged at 70 to 80 percent, the same range reported for the comparable quarter a year earlier. That suggests the region’s manufacturers were producing more without a broad shift in how intensively plants were being used.

The survey also highlighted ongoing operational constraints. Seventy-two percent of firms said labor supply was at least a slight constraint on capacity utilization in the current quarter, up from 50 percent the last time the question was asked in June. Looking ahead three months, most respondents expected the impact of various constraints to remain the same, though 36 percent said energy-market pressures could worsen and 20 percent expected uncertainty to worsen.

Those findings help explain why the headline survey can stay strong even when some subindexes cool. Demand and shipments can remain positive while companies still face limits tied to hiring, costs or external conditions. The Philadelphia Fed also notes in its survey methodology that it asks manufacturers in the Third District, which covers eastern and central Pennsylvania, southern New Jersey, and Delaware, whether conditions are improving, unchanged, or worsening relative to the prior month. That makes the survey a directional read on breadth rather than a direct measure of output levels.

Firms still expect growth over the next six months

Forward-looking indicators remained clearly expansionary, though they stepped down from August’s lofty levels. The future general activity index fell 21 points to 52.9, its lowest reading since July. Even so, nearly 58 percent of firms expected activity to increase over the next six months, compared with only 5 percent expecting a decrease.

The future new orders index eased 4 points to 62.3, and the future shipments index edged down 2 points to 61.1. Employment expectations strengthened rather than softened, with the future employment index rising to 50.6. Future capital spending plans remained positive as well, though the capital expenditures index fell 11 points to 37.1.

The strongest future readings in the report came from price expectations. The future prices paid index rose to 71.3 from 62.9, and the future prices received index climbed 13 points to 72.3. Both remained well above their long-run averages, indicating that manufacturers broadly expect cost and selling-price pressures to stay elevated over the next half year.

Overall, the September survey painted a fairly specific picture rather than sending a mixed signal. Activity, orders and shipments all stayed positive. Hiring cooled but did not turn negative. Prices reaccelerated. Future indicators remained strong even after pulling back from August. For markets, the release suggests regional manufacturing kept expanding in September, but with price pressure still active enough to remain part of the broader economic story.