U.S Philly Fed Manufacturing Index

August 2018 Manufacturing Business Outlook Survey

Growth in regional manufacturing activity slowed in August, according to results from this month’s Manufacturing Business Outlook Survey. All the broad indicators remained positive but fell from their readings in July. The survey’s respondents continued to indicate price increases for purchased inputs and their own manufactured products, but these price indexes moderated slightly this month. Expectations for the next six months remained optimistic, with most broad future indicators showing improvement.

Current Indicators Still Positive but Weaken

The diffusion index for current general activity decreased 14 points this month to 11.9, its lowest reading in 21 months (see Chart 1). Nearly 32 percent of the manufacturers reported increases in overall activity this month, while 20 percent reported decreases. The new orders index fell 22 points to 9.9. More than 34 percent of the firms reported an increase in new orders, while 24 percent reported a decrease.

The firms continued to report overall higher employment, but increases were less widespread this month. Just 18 percent of the responding firms reported increases in employment this month, down from 24 percent last month. Only 4 percent of the firms reported decreases in employment. The current employment index fell 3 points to 14.3. The current average workweek index declined 3 points.

Many Firms Continue to Report Price Increases

The survey’s current price measures moderated slightly but remain elevated, indicating that price increases for both purchased inputs and the firms’ own manufactured goods remain widespread. The prices paid index fell 8 points. Price increases for purchased inputs were reported by 63 percent of the manufacturers this month. Nearly 35 percent of the firms reported higher prices for their own manufactured goods this month, although the prices received index fell 3 points.

Six-Month Indicators Rebound

The diffusion index for future general activity, after declining four consecutive months, increased from 29.0 in July to 38.8 this month (see Chart 1). Over 50 percent of the firms expect increases in activity over the next six months, while 12 percent expect declines. The future new orders and shipments indexes increased 10 points and 5 points, respectively. The future prices paid and received indexes edged higher, with 64 percent of the firms expecting price increases for purchased inputs over the next six months and 62 percent expecting higher prices for their own manufactured goods. The future employment index increased 5 points to a reading of 32.1, with almost 39 percent of the firms expecting to add workers over the next six months.

Firms’ Own Prices Expected to Match Rate of Inflation

In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, the same as when the same question was last asked in May. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 3.0 percent, slightly higher than the 2.5 percent projected in the previous survey. The firms’ forecast for the long-run (10-year average) inflation rate was also 3.0 percent.


Responses to the Manufacturing Business Outlook Survey indicated slower growth for the region’s manufacturing sector in August. The survey’s broad current indicators declined from their readings last month but remained positive. Looking ahead six months, however, the firms remain optimistic, and most of the future indicators showed improvement.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell