Philadelphia Fed Manufacturing Index Falls to 20.9 as Factory Growth Moderates

Manufacturing activity in the Philadelphia Federal Reserve District continued to expand in October, but the pace of improvement became less widespread. The regional Fed’s general activity index fell to 20.9 from 37.8 in September, with new orders and shipments both losing momentum.

The decline was the index’s second in a row after a reading of 47.4 in August. October’s figure remained positive, meaning a larger share of surveyed manufacturers reported improving activity than reported deterioration. It did not mean factory production grew by 20.9%, a distinction that matters when interpreting this type of survey.

Responses collected from October 5 through October 12 showed that 41.2% of firms reported higher general activity, compared with 20.3% reporting lower activity. In September, roughly 45% had reported increases and 8% decreases. The shift suggests that conditions were still favorable for many producers, although weakness had become more common across the survey panel.

Published Thursday in the Philadelphia Fed’s October Manufacturing Business Outlook Survey, the figures cover manufacturers in eastern and central Pennsylvania, southern New Jersey and Delaware. The monthly diffusion indexes measure the breadth and direction of change among respondents, not the volume of goods produced or the growth rate of U.S. manufacturing as a whole.

New orders weakened more sharply than overall activity

The most pronounced cooling came in new orders. That index tumbled to 4.3 from 29.2 in September, narrowing the gap between firms reporting rising demand and those reporting declines. About 38.5% reported higher new orders, while 34.1% reported fewer. A positive reading so close to zero still points to a slight majority on the increasing side, but it is far less broad-based than the growth seen a month earlier.

Shipments also moderated, with their index falling to 15.3 from 27.7. Since orders can influence later production schedules and shipments reflect goods moving out of factories, the weakening in both measures gives a more cautious picture than the headline general activity figure alone. The survey does not establish how large those changes were in physical output or sales.

Other measures reinforced the sense that activity was growing less evenly. The unfilled orders index dropped from 20.4 to 2.4, while the delivery times index declined from 26.5 to 8.5. Inventories remained in negative territory at minus 12.8, little changed from September’s minus 12.5. Those readings show fewer firms reporting increases relative to decreases in important parts of their operations, rather than proving that all surveyed companies were cutting back.

Employment offered a steadier, though less vigorous, signal. Its index edged down to 9.1 from 11.8, with 18% of respondents reporting more employees and about 9% reporting fewer. Roughly 68% reported no change in staffing. The average employee workweek index fell more substantially, from 18.0 to 7.5, its lowest reading since June, indicating that increases in hours had also become less widespread.

That difference between jobs and hours is useful context. Manufacturers can adjust production schedules without immediately changing headcount, so the workweek measure provides another perspective on how firms are responding to demand. Neither indicator, however, directly measures the number of jobs added or the number of hours worked across the entire region.

Selling-price pressures rose despite weaker orders

Pricing was a less straightforward part of the October report. The prices paid index eased to 43.2 from 48.6, suggesting that increases in input costs had become somewhat less widespread. More than 43% of respondents still said the prices they paid rose, while 52% reported no change and none reported decreases. A lower positive diffusion reading therefore should not be mistaken for falling input prices.

For prices charged to customers, the picture moved the other way. The prices received index rose to 40.1 from 31.3, reaching its highest level since May 2025. About 41% of manufacturers reported raising prices for their own products, compared with just 1% reporting reductions. The widening gap between those groups indicates that selling-price increases were more common than they had been in September, despite the cooling in new orders.

These indexes describe how many companies are experiencing price changes, not how much prices are rising at any individual company. They cannot by themselves establish whether manufacturers’ profit margins are improving or whether producers are successfully passing through all their costs. Still, the contrast between a weaker orders index and a stronger prices received index shows why softer activity cannot automatically be equated with fading price pressure.

Expected pricing trends also remained elevated. The six-month prices paid index eased from 71.3 to 62.9, and the future prices received index declined from 72.3 to 62.1. Both readings stayed well above their long-run averages, according to the Philadelphia Fed, even though fewer firms anticipated price increases than in the preceding month.

Growth expectations cooled, but 2027 investment plans strengthened

Manufacturers still expected conditions to improve over the coming six months, though with less confidence than in September. The future general activity index fell to 33.0 from 52.9, its lowest reading since January. More than 51% of respondents anticipated higher activity, while 18% expected a decline. The outlook remained positive, but optimism was no longer as widespread.

Future demand measures showed similar changes. The six-month new orders index dropped from 62.3 to 37.0, and the future shipments index fell from 61.1 to 35.2. Expectations for employment growth also moderated, with that index declining to 30.1 from 50.6. The separate forward-looking capital expenditures index slipped to 34.9 from 37.1.

An October special question about spending plans for 2027 nevertheless offered a more encouraging longer-term signal. Asked to compare total capital expenditures next year with 2026, 52.2% of responding manufacturers expected an increase and 47.8% expected no change. None expected a decrease. When the Fed asked the comparable question a year earlier, 36% anticipated higher spending and 19% anticipated lower spending.

Noncomputer equipment stood out: half of respondents expected higher spending on it, and the other half expected the same amount. Software and computer-related hardware each drew higher-spending plans from 39.1% of firms. At least half of the respondents expected spending to remain unchanged across each category, tempering any suggestion of a universal expansion in capital budgets.

The two capital spending measures should not be treated as interchangeable. The regular survey index asks about the next six months, while the special question compares total spending planned for the full year of 2027 against 2026. Intentions can also change as orders, costs and financing conditions evolve. For now, the responses show that shorter-term business expectations have cooled without eliminating plans to invest in equipment and other capacity next year.

The next Philadelphia Fed manufacturing survey is scheduled for November 19 at 8:30 a.m. Eastern Time. Its new orders and workweek readings should offer a clearer indication of whether October’s slowdown was temporary or part of a longer moderation in regional factory activity.