Economic Data and Growth

Manufacturing activity increased in the Tenth District in March, with the month-over-month composite index rising to 11 in March from 5 in February. Meanwhile, expectations for future activity improved 1 point to 16. The month-over-month activity gain was due to an increase in both durable and nondurable manufacturing. At the same time, the new orders index rose in March, and the employment index turned positive. The Tenth Federal Reserve District encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.

The production and shipments indexes both increased, rising from 10 to 11 and from 11 to 20, respectively. Meanwhile, new orders jumped from 7 to 15. The employment index climbed from -6 to 7, while the average employee workweek ticked up from 6 to 7. The backlog of orders index increased 5 points to 13, its highest level in over a year. At the same time, the pace of growth for prices paid weakened and prices received strengthened, with raw materials prices decreasing 5 points to 37 and prices received ticking up 1 point to 19. Furthermore, the indexes for prices received and paid both decreased over the year, moving down to 52 and 72, respectively.

In March, survey respondents were asked special questions about expected changes in profit margins and product demand. Overall, 32% of firms reported that they expect their profit margins to increase over the next 12 months, while 44% predict a decline and 24% anticipate no change. Furthermore, 60% expect their product demand to be higher in 2026, 20% anticipate no change and 20% predict product demand will be lower than in 2025.

Manufacturing activity in the Fifth District stayed the same in March after declining in February, with the composite manufacturing index increasing from -10 to 0. At the same time, the local business conditions index advanced from -15 to -5 in March. Despite an improvement in the headline index in March, manufacturers are slightly less optimistic about the future, with the outlook for future local business conditions falling from 22 in February to 16 in March. The Fifth District consists of Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.

Among its components, shipments remained negative but contracted at a slower pace, rising from -13 to -2, while new orders turned positive, climbing from -9 to 4. The indexes for employment and vendor lead times grew in March, moving from -7 to -2 and from -1 to 13, respectively. Meanwhile, the share of firms reporting backlogs improved slightly, increasing from -14 to -10. At the same time, the average growth rate of prices paid slowed in March while the average growth rate for prices received accelerated from February.

Looking ahead, firms expressed an expectation that both price indexes would increase in the next 12 months but at a slower pace than forecasted in February. Expectations for future shipments and new orders remained positive but declined from 29 to 26 and from 35 to 30, respectively. Expectations for backlogs ticked down from 6 to 3. Meanwhile, firms’ expectations about equipment and software spending turned negative, falling from 2 to -2. In sum, businesses in the Fifth District remained optimistic about future business conditions but became slightly pessimistic about future investment plans.

The S&P Global Flash U.S. Manufacturing PMI increased from 51.6 to 52.4 in March, a two-month high. This continued the trend of eight consecutive months of growth. Factory production and new order growth both improved in March, with new orders experiencing their strongest growth since October.  Meanwhile, export orders stabilized after eight months of decline due to some softening of tariff impacts.

Inventories grew in March as companies mentioned purchasing safety stock to ensure supply availability amid delivery concerns. At the same time, supplier delivery times lengthened to the greatest extent since October 2022, with respondents linking the increase to the conflict in Iran. Manufacturers’ input cost inflation rose at the fastest pace in 10 months, largely due to the energy price spike. Meanwhile, selling price inflation moved up, resulting in the largest increase in average selling prices since August 2022. Overall, price increases accelerated for manufacturers and the service industry.

Overall business activity declined to an 11-month low, edging down from 51.9 in February to 51.4 in March. Although manufacturing growth accelerated, the growth rate in the services sector continued to moderate, falling to an 11-month low. Overall, growth of new orders cooled, driven by a decline in export sales. Employment fell for the first time in over a year amid declining private sector confidence.

Furthermore, optimism about future business conditions declined in March. The optimism reflected manufacturers’ war-related concerns being countered in part by reduced worry over the impact of tariffs. In addition, the outlook for service providers hit its weakest level since October over concerns of higher energy prices and the prospect of higher interest rates.

U.S. import prices increased 1.3% in February, after rising 0.6% in January, with higher nonfuel and fuel prices driving the increase. Over the past year, import prices advanced 1.3%. Meanwhile, U.S. export prices climbed 1.5% in February, driven by higher prices for both nonagricultural and agricultural exports. Over the past year, export prices rose 3.5%.

In February, U.S. import prices for manufacturing rose 2.2% over the year, but most of the industry experienced price declines. Primary metal manufacturing experienced the most significant over-the-year U.S. import price increase in February, surging 33.8%. On the other hand, the greatest yearly decline in U.S. import prices occurred in beverage and tobacco product manufacturing, which fell 12.0% from February 2025. Meanwhile, U.S. export prices for manufacturing in February advanced 4.4% over the year, with primary metal manufacturing export prices exhibiting the largest rise (44.2%). 

Fuel import prices climbed 3.8% in February, the largest monthly rise since April 2024, after declining 1.2% in January. Higher prices for petroleum and natural gas drove the increase, climbing 2.5% and 24.7%, respectively. However, prices for fuel imports fell 10.6% from February 2025. At the same time, natural gas prices soared 57.9% over the year.

Nonfuel import prices increased 1.1% in February, after advancing 0.8% in January. Higher prices for capital goods, nonfuel industrial supplies and materials, consumer goods, automotive vehicles and foods, feeds and beverages drove the increase. The price index for nonfuel imports grew 2.5% over the past year, the largest over-the-year gain since October 2022.

After inching up 0.2% in January, agricultural export prices increased 0.7% in February. Over the past 12 months, agricultural export prices advanced 2.2%. Meanwhile, nonagricultural export prices rose 1.7% in February. Higher prices for nonagricultural industrial supplies and materials, consumer goods, capital goods and automotive vehicles drove the gain. Over the past year, nonagricultural export prices climbed 3.8%.

Manufacturing activity in New York state was little changed in March, with the headline business conditions index falling 7.3 points to -0.2, right under the threshold that indicates contraction. The new orders index edged up 0.6 points to 6.4, while the shipments index moved down 5.9 points to -6.9. Unfilled orders increased 1.7 points to 10.8, while inventories ticked down 0.2 points to 6.9, indicating business inventories are growing but at a slightly slower pace. Delivery times lengthened, and supply availability worsened, declining 2.9 points to -3.9.

Employment increased in March, with the index for the number of employees rising 1.8 points to 5.8. At the same time, the average employee workweek index ticked down to 1.9 from 2.1, signaling a slower pace of increase in hours worked in March. The prices paid index fell 12.5 points to 36.6, while the prices received index edged down 0.8 points to 21.4, reflecting a slower pace of increase in both prices paid and prices received.

In March, firms’ optimism regarding the future declined but remained positive, with the future business activity index decreasing 3.7 points to 31.0. In the next six months, new orders are expected to rise but at a slower pace compared to the prior month at 29.1. The future employment index moved down 3.9 points to 22.2, suggesting an anticipated slower pace of employment growth over the next six months. Meanwhile, input and selling price expectations are forecasted to increase at a slower pace, dropping from 57.6 to 43.1 and from 40.3 to 32.4, respectively. Furthermore, capital spending plans strengthened from February, up from 18.2 to 21.6.

In March, Philadelphia’s regional manufacturing activity expanded for the third consecutive month, with the index for general business activity advancing from 16.3 to 18.1. This month, 39.2% of firms reported increases in activity, while 21.1% of firms noted decreases. The index for new orders moved down from 11.7 to 8.6, while the shipments index surged 21.9 points to 22.2, its highest reading since January 2025. Meanwhile, the employment and average employee workweek indexes both turned positive, rising 2.1 points to 0.8 and 14.4 points to 2.8, respectively.

The prices paid index increased from 38.9 to 44.7, while the prices received index moved up from 16.7 to 21.2 in March. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth remained positive. After climbing 17.3 points in February, expectations for future business activity fell 2.8 points to 40.0 in March. The decline came from an increase in the proportion of firms expecting a decrease in activity (16.3%). At the same time, the proportion of firms expecting an increase in activity (56.3%) moved up in March. The future new orders index decreased from 54.1 to 49.6, while the capital expenditures index rose from 14.4 to 25.8. The future prices paid and prices received indexes declined from 54.1 to 53.7 and from 50.1 to 38.4, respectively. Additionally, the index for future employment jumped from 14.9 to 40.4.

In March, firms were asked about total production and capacity utilization in the first quarter of 2026 compared to the prior quarter. Of those responses, 51.8% reported an increase in production, while a smaller share (29.6%) noted a decrease. The median capacity utilization rate was unchanged from last quarter at 70% to 80%. When asked about which factors acted as constraints on capacity utilization, nearly half of firms (48.1%) said that uncertainty was at least a moderate constraint on capacity utilization. Looking forward, 53.6% of respondents expect the impact of energy markets to worsen, while 40.7% forecast the impact from uncertainty to worsen.

The Producer Price Index for final demand (also known as wholesale prices) jumped 0.7% over the month in February, up from the 0.5% increase in January and significantly above expectations. Over the year, producer prices climbed 3.4% in February, up from 2.9% in January and the largest 12-month increase since February 2025. Meanwhile, prices for final demand excluding foods, energy and trade services grew 0.5% over the month in February after rising 0.4% in January. Prices for these goods advanced 3.5% from February 2025.

Within final demand, prices for services rose 0.5% in February, after advancing 0.8% in January. Meanwhile, prices for goods soared 1.1% in February, the largest monthly increase since August 2023, after edging down 0.2% in January. Within the final demand services index, prices for traveler accommodation services surged 5.7%, accounting for about 20% of the February increase. Within the final demand goods index, prices for fresh and dry vegetables jumped 48.9%, accounting for over 20% of the February rise. At the same time, prices for industrial material handling equipment climbed 0.1% from January and 6.1% from February 2025.

Prices for processed goods for intermediate demand rose 1.6% in February, the largest monthly increase since August 2023, after staying the same in January. Within the index, prices for diesel fuel soared 13.9% after declining 1.1% in January. Meanwhile, prices for steel mill products and aluminum mill shapes advanced 3.0% and 5.7% from January and 20.9% and 39.1% from February 2025, respectively. Over the year, the index rose 4.0%, the largest annual increase since December 2022.

Meanwhile, prices for unprocessed goods for intermediate demand jumped 3.1% in February, the largest monthly increase since January 2025, after moving up 0.9% in January. The monthly rise was led by a 10.9% leap in natural gas prices, which surged 30.0% over the year. In contrast, prices for raw milk fell 9.1% in February and 33.3% from February 2025. Over the year, prices for unprocessed goods for intermediate demand decreased 1.7%, after declining 4.5% in January.

As anticipated, the Federal Open Market Committee maintained its interest rate target range at 3.50%–3.75% at its March meeting. On the other hand, one FOMC member—Stephen Miran—dissented, preferring to lower the target range by 25 basis points. In a change to its previous statement, the FOMC noted that the implications of developments in the Middle East for the U.S. economy are uncertain.

In the press conference following the meeting, Federal Reserve Chairman Jerome Powell noted that economic activity continues to expand at a solid pace, with job gains staying low while inflation remains elevated. Chairman Powell noted that the higher energy prices due to events in the Middle East will push up prices in the near term, but it is too soon to know the scope and duration of the potential effects on the economy. He reaffirmed that the FOMC is well positioned to determine the extent and timing of additional adjustments to its policy stance.

The FOMC’s summary of economic projections, which maps out the Federal Reserve’s expectations for where interest rates may be headed in the future, signaled a somewhat less mixed stance compared to the December summary. Twelve Federal Reserve officials project there will be additional rate cuts across 2026, while seven anticipate no additional rate cuts this year. A majority of the officials who predict a rate cut this year anticipate just one 25-basis-point cut across 2026. Meanwhile, the projections show that officials still expect inflation to remain elevated, averaging 2.7% in 2026, more so than the 2.4% average projected in December. At the same time, the projections show officials expect real GDP to rise slightly more in 2026 than previously anticipated.

New orders for manufactured goods inched up 0.1% in January following a 0.4% decrease in December. Meanwhile, new orders for manufactured goods grew 3.5% over the year. When excluding transportation, new orders rose 0.4% over the month and 0.6% year-over-year in January. Orders for durable goods stayed the same following a 0.9% decline in December. Year to date, durable goods orders jumped 9.1%. Nondurable goods orders advanced 0.3% in January after ticking up 0.1% in December. Nondurable goods orders decreased 1.8% over the year.

New orders for ships and boats led the rise in durable goods orders, surging 10.9% following December’s 5.8% drop. In January, the largest monthly decrease occurred in defense aircraft and parts, which plummeted 23.8% after gaining 11.8% in December. The largest over-the-year changes occurred in nondefense aircraft and parts (up 93.8%) and metalworking machinery (down 8.9%).

Factory shipments rose 0.5% in January after increasing 0.7% in December. Shipments over the year grew 1.4%. Shipments excluding transportation moved up 0.4% in January following a 0.5% gain the previous month. Shipments for durable goods stepped up 0.6% following a 1.2% rise in December and are up 4.8% year to date. Meanwhile, nondurable goods shipments increased 0.3%, after ticking up 0.1% the prior month, and have declined 1.8% year to date.

Unfilled orders for all manufacturing industries increased 0.8% in January after rising 0.9% in December. Unfilled orders over the year jumped 11.1%. Inventories stepped up 0.8% year-over-year. The inventories-to-shipments ratio edged down from 1.56 to 1.55 in January. Meanwhile, the unfilled orders-to-shipments ratio for durable goods stayed the same at 7.01 from December.

Industrial production increased 0.2% in February, while manufacturing output rose by the same amount after expanding 0.8% in January. At 97.6% of its 2017 average, manufacturing production advanced 1.3% from February 2025. Capacity utilization for manufacturing was 75.6%, unchanged from January but up 1.1% over the past year. Capacity utilization remained 2.6 percentage points below its long-term average from 1972 to 2025.

In February, major market groups posted mixed results. Consumer goods production stayed the same, while business equipment output increased 0.2%. The gain in production of consumer durables (up 0.4%) was led by the output of appliances, furniture and carpeting rising 1.5%. Meanwhile, the index for consumer nondurables moved down 0.1%, led by a decline in the index for clothing (down 0.4%). Among business equipment, the 2.8% gain in transit equipment led the increase. At the same time, the index for materials improved 0.3%, while the index for construction supplies declined 0.2% and the index for business supplies ticked up 0.1%.

Durable goods manufacturing advanced 0.1% in February and 2.4% from the year prior. Monthly growth was greatest for motor vehicles and parts (up 1.7%), while machinery posted the largest decline (down 1.2%). Meanwhile, led by a 0.9% gain in chemicals output, nondurable manufacturing edged up 0.2% in February and 0.3% from February 2025.