Philly Manufacturing Activity Sees Highest Level Since 2021, While Future Expectations Ease

In July, Philadelphia’s regional manufacturing activity expanded to its highest level since November 2021, with the index for general business activity climbing from 10.3 to 41.4. This month, 53.1% reported increases, while 11.7% reported decreases. New orders rose, moving up from 27.3 to 37.0, while shipments advanced from 14.9 to 33.7. Meanwhile, the employment index improved, increasing 2.1 points to 10.0, and the average employee workweek grew 20.5 points to 14.0.

The prices paid index inched up in July, increasing from 53.2 to 53.9, while the prices received index moved up from 20.3 to 27.4. 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, most indicators showing expectations for future growth declined but remained positive in July. After stepping down 3.0 points in June, expectations for future business activity fell 15.8 points to 34.4 in July. The decline came from a drop in the proportion of firms expecting an increase in activity (51.5%). At the same time, the number of firms anticipating a decrease in activity (17.1%) grew in July. The future new orders index plummeted from 60.8 to 35.1, and the future shipments index moved down from 60.3 to 39.3. Meanwhile, the capital expenditures index decreased from 41.2 to 30.1. The future prices paid and prices received indices both declined, moving from 63.2 to 56.7 and from 67.2 to 41.4, respectively, with both indices remaining above their long-run averages. Additionally, the index for future employment ticked down from 30.8 to 29.5.

In July, firms were asked about changes in wage rates and compensation packages as well as expectations for input and labor costs. Of those responses, 51.7% of firms indicated wage rates and compensation costs have increased over the past three months, 44.8% reported no change and 3.5% of firms indicated a decrease during that time. When asked about input and labor costs, firms expect higher energy costs (up 5% to 7.5%), higher cost of health benefits (up 4% to 5%) and smaller increases in other categories. Notably, 28.0% of respondents anticipate health benefit costs to rise by more than 12.5% during 2026.