Philly Fed Manufacturing Index Continues Its Downward Slump

Key Takeaways

• The Philly Fed Manufacturing Index dropped again in November.
• This drop takes the index to its lowest point since May 2020.
• The index has been negative for the last three months.

While certain economic metrics seem to indicate that we are in a recession, other factors show more positive signs. Currently, the Philly Fed Manufacturing Index is flashing bad news for the manufacturing sector.

Let’s take a closer look at the Philly Fed Manufacturing Index and how it might impact your investment portfolio.

What is the Philly Fed manufacturing index?

The Federal Reserve Bank of Philadelphia conducts a monthly survey of manufacturers. The survey is limited to the Third Federal Reserve District, which covers Delaware, nine counties in New Jersey, and 48 counties in Pennsylvania. It has run each month since May 1968.

The survey asks manufacturers about the direction change in their overall business activities. Plus, they are asked to provide various metrics, including employment numbers, working hours, orders, inventory, shipments, and more.

Ultimately, this survey leads to an index that interprets the data more efficiently. It serves as a helpful indicator of the manufacturing activity in the mid-Atlantic region.

Philly Fed Manufacturing Index Continues Slump

In the November Business Outlook Report, the index fell to -19.4. That’s a significant drop from October’s index of -8.7.

The November reading marks the third consecutive month of negative readings. Also, this is the fifth negative reading in the last six months.

Excluding the early 2020 pandemic months, this index report is the lowest since 2011. The slumping index is a red flag for the manufacturing sector in the mid-Atlantic region of the U.S. However, the falling index could have implications across the economy.

Although 47% of firms reported no changes in their current activity, 53% reported changes to their business activities. While 17% of firms reported increased activity in the last month, almost 36% reported a decrease in activity from the previous month.

In terms of manufacturing employment, 69% of firms reported steady employment levels. However, 19% of firms reported higher employment, and 12% reported lower employment.

As these firms look ahead, many expect an overall decline in activity in the coming months. Additionally, they expect fewer new orders six months from now, which isn’t great news.

Potential reasons for manufacturing changes

Manufacturers don’t exist in a bubble. Instead, the changes happening in the economy at large can impact manufacturing. One indicator in the November Business Outlook Report is the prices reported by manufacturers.

On one end of the operation, firms indicate an overall price increase for the inputs. Inputs include raw materials a manufacturer needs to make an end product. For example, the inputs for a couch might consist of fabric, stuffing, wood, and more.

Although 41% of firms reported no change to their input prices, almost 47% reported higher input prices.

Manufacturers aren’t simply absorbing this rising cost of business. Instead, they are raising the prices of final products to compensate for the issue – 38% of firms reported increasing their prices, but 59% are currently avoiding any price increases.

Beyond the actual costs, many firms are predicting long-term inflation for the next ten years. The estimated 10-year average inflation rate was 4%. That’s higher than the firms’ 3% inflation forecast in August.

How this impacts your investment portfolio

The manufacturing sector isn’t the only area of the economy feeling the pinch of inflation. At this point, most participants in the economy are feeling the strain. Even the average consumer can see the rising costs of living when checking out at the grocery store.

Keeping inflation in mind while building out your investment portfolio is helpful as the economy continues to shift around us. However, staying on top of the changing indicators can take time and effort.

If you don’t have the time to stay on top of every metric, that’s okay. You can use artificial intelligence (AI) to monitor market changes. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing both straightforward and strategic. If adjustments must be made to remain aligned with your goals, Q.ai will take care of it for you.

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Bottom Line

As the Philly Fed Manufacturing Index falls, it’s another sign of potentially tumultuous times ahead. Although it can feel like a challenge to thrive financially in turbulent economic times, moving toward your financial goals is still possible.

For investors, building a portfolio could set you up for long-term financial success. However, if you don’t have time to monitor every metric and swing in the market, consider taking advantage of AI to make your investment journey more streamlined.

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