Philadelphia Fed Manufacturing Index
A regional manufacturing survey that serves as a leading indicator for the ISM Manufacturing PMI
What is the Philadelphia Fed Manufacturing Index?
In one line: The Philadelphia Fed Manufacturing Index is a regional manufacturing survey that shows in numbers "how manufacturers in the Federal Reserve Bank of Philadelphia's district rate their current business environment."
The Federal Reserve Bank of Philadelphia (shortened to Philly Fed) surveys manufacturers every month in Pennsylvania (PA), New Jersey (NJ), and Delaware (DE), the three states in its district. More than 100 manufacturers take part.
Launched in 1968, it is one of the oldest regional manufacturing surveys in the United States. But why does a regional survey get nationwide attention? The reason is simple: it is released before the ISM Manufacturing Index (national level). Philly Fed comes out on the third Thursday of the month, while ISM comes out on the first business day of the next month, about two weeks later. That's why Wall Street uses Philly Fed as a "preview" of ISM.
In particular, Philly Fed's Prices Paid sub-index is data the Fed and the market watch very closely as an early signal of inflation. When manufacturers say raw material prices are rising, those costs will likely be passed on to consumers in the end.
English term
Philadelphia Fed Manufacturing Index, Philly Fed Index, Philly Fed Survey
Korean term
Philadelphia Fed Manufacturing Index, Philly Fed Index, Philly Fed Manufacturing
What does it measure?
The Philly Fed survey asks manufacturer executives to pick one of three options for various business activities: "up / no change / down." From those answers, the survey builds a headline index and several sub-indices.
General Business Conditions Index -- Headline
When the news says "Philly Fed XX," this is the number they mean. It is calculated by asking manufacturers "How is your overall business environment this month?"
It is calculated as a Diffusion Index: (% reporting up) - (% reporting down) = the index. The baseline is 0. Above 0 means expansion; below 0 means contraction.
Key Sub-Indices
New Orders: Whether new orders are increasing. A leading indicator of future production and sales.
Shipments: Actual product shipments. Reflects the current activity level.
Employment: Manufacturing employment conditions. Correlated with NFP manufacturing payrolls.
Prices Paid: Changes in raw material and input costs. A leading signal of inflation and very important.
Prices Received: Changes in product selling prices. Shows how much companies pass on costs to customers.
Current Activity Index vs. Future Activity Index
The Philly Fed survey covers two time frames:
Current Activity: Asks about "this month's situation." Reflects the current business cycle.
Six-Month Outlook: Asks about "the outlook six months from now." A leading indicator that reflects executives' future expectations. If current activity is negative but future activity is positive, it means manufacturers are expecting a recovery soon.
Key points: all you need to know
To interpret the Philly Fed correctly, you need to understand a few key points.
1. The baseline is 0 (not ISM's 50!)
Don't confuse it with ISM!
The ISM Manufacturing Index uses 50 as the baseline. Above 50 means expansion; below 50 means contraction.
Philly Fed uses 0 as the baseline. Above 0 means expansion; below 0 means contraction. A Philly Fed reading of -5 does not mean ISM will be 45 (contraction). The two indexes are on completely different scales, so you should not compare the numbers directly.
+20 or higher
Strong expansion. Manufacturing is growing fast
0 to +20
Mild expansion. Normal growth range
Below 0 (negative)
Contraction. Manufacturing activity is shrinking
2. Regional vs. National: Philly Fed -> ISM correlation
Philly Fed covers only three states (PA, NJ, DE), but it has historically shown a high correlation with the national ISM Manufacturing Index. The reason is that this region is one of the major manufacturing hubs in the United States.
However, the correlation is not a perfect 1:1 match. Local factors (for example, the closure of a large factory in the region) can sometimes cause Philly Fed to drop sharply on its own. That's why looking at the NY Empire State Manufacturing Index, which is released in the same period, gives a more accurate picture of national manufacturing.
3. Prices Paid -- the hidden leading inflation indicator
Prices Paid spike
Manufacturers report that raw materials, parts, and energy costs are rising sharply. These costs are likely to be passed on to consumer prices (CPI, PPI) in 2 to 4 months. Inflation worries -> hawkish Fed expectations -> pressure on growth stocks.
Prices Paid falls
A signal that input cost pressure is easing. Disinflation (slower price increases) expectations grow. Dovish Fed (rate cut) expectations -> positive for growth stocks.
4. The importance of the six-month outlook index
Even if the current activity index is negative (contraction), a high positive six-month outlook means manufacturers expect a recovery soon. On the flip side, if current activity is positive but the outlook drops sharply, it is a warning that things may be okay now but could get tougher later. Watching the gap between the current and future indexes can help you spot turning points in the economy early.
Why does it matter? -- Impact on the markets
There are three main reasons the market pays so much attention to Philly Fed.
First, it is a preview of the ISM Manufacturing Index. Philly Fed comes out on the third Thursday of the month, and ISM comes out on the first business day of the next month. That two-week gap is very valuable time for investors. If Philly Fed comes in stronger than expected, ISM is likely to come in strong as well, so investors can adjust their manufacturing-related positions early.
Scenario: Philly Fed beats expectations
ISM expectations: ISM is also likely to come in strong -> manufacturing expansion expected
Equities: Manufacturing-related stocks such as industrials (CAT, DE, HON) and materials (DOW, FCX) rally
Outlook: Manufacturing recovery -> broader economic expansion -> preference for risk assets
Scenario: Philly Fed plunges
ISM expectations: ISM is also likely to be weak -> manufacturing contraction worries
Equities: Cyclical stocks (industrials, materials) fall -> defensive sectors (utilities, healthcare) outperform
Bonds: Slowdown worries -> demand for safe assets -> Treasury prices rise (yields fall)
Second, Prices Paid is an early warning of inflation. When manufacturers say input costs are rising, those costs feed into finished-goods prices a few months later and ultimately into consumer prices (CPI). During the 2021-2022 inflation surge, Philly Fed's Prices Paid spiked first and CPI followed, which is a classic example.
Third, it is a rare "real-time" indicator that shows data for the current month. Most economic indicators report data for the "previous month." For example, April's NFP report covers March employment. But Philly Fed surveys manufacturers about the current month's manufacturing activity. The Philly Fed released in the third week of April reflects business conditions in April. This "real-time" quality makes it one of the fastest indicators for spotting turning points in the economy.
Real-world example (2024-2025): In the second half of 2024, Philly Fed bounced between negative and positive readings, reflecting an uncertain manufacturing environment. In early 2025, as tariff policy uncertainty grew, the New Orders index dropped sharply, but the six-month outlook stayed relatively healthy. That signaled manufacturers expected short-term disruption but a longer-term recovery. Meanwhile, Prices Paid rebounded, and concerns about tariff-driven input cost increases were reflected in the market.
Release schedule and where to find it
Philly Fed is released once a month.
When it's released
Released on the third Thursday of every month at 8:30 a.m. U.S. Eastern Time. In Korean time that's 9:30 p.m. during daylight saving time (March-November) and 10:30 p.m. during standard time (November-March). Because it comes out before the market opens, the reaction first shows up in the futures market.
Who releases it
The Federal Reserve Bank of Philadelphia -- one of the 12 regional Federal Reserve Banks, established in 1914. Also called "The Third District."
It comes out the same week as the NY Empire State!
The NY Empire State Manufacturing Index is released on the third Monday of the month (around the 15th), so two regional manufacturing reports come out in the same week. Empire State on Monday, Philly Fed on Thursday. If both indicators move in the same direction, confidence in predicting the national ISM goes up a lot.
Key numbers to check when the release comes out:
Headline index
Baseline 0 -- expansion vs. contraction
New Orders
Leading signal of future demand
Prices Paid
Leading inflation indicator -- watched by the Fed
Six-month outlook
Executives' future expectations
How investors can use it
Here are four practical strategies for using Philly Fed in investing.
Strategy 1: Use it as an ISM preview
If Philly Fed comes in stronger than expected, you can adjust your weighting in industrials and materials in anticipation that ISM will also be strong two weeks later. If it is weak, shift to a more defensive position.
Practical tip: Look at the NY Empire State index from the same week. If both move in the same direction (both up or both down), your ISM prediction becomes more reliable. If they diverge, ISM could come in mixed, so it's safer to stay neutral on your positioning.
Strategy 2: Gauge inflation direction with Prices Paid
If Prices Paid is on an uptrend for three months in a row, an inflation rebound in CPI/PPI is more likely in the near future. In that environment, tilt your portfolio toward inflation winners (energy, gold, TIPS) and be careful with rate-sensitive growth stocks.
Conversely, if Prices Paid is trending down, disinflation expectations build. That is a friendly environment for long-duration Treasuries (TLT) and growth stocks (Nasdaq). Remember: turning points in Prices Paid tend to lead turning points in CPI by 2 to 4 months.
Strategy 3: Analyze demand with New Orders
The New Orders sub-index is a leading indicator of future manufacturing production and corporate revenue. When New Orders turns positive, manufacturing may have bottomed.
Key point: If New Orders is on a three-month rising streak, it can be read as the early stage of a manufacturing recovery. In that environment, take a closer look at the industrials ETF (XLI) or individual manufacturing names (HON, MMM, GE). On the other hand, consecutive declines in New Orders are a warning of weakening demand.
Strategy 4: Combine Philly Fed + Empire State signals
Adding Monday's NY Empire State and Thursday's Philly Fed together gives you a fairly accurate read on nationwide manufacturing sentiment. If the average of the two is +15 or more, that's strong expansion; 0 to +15 is mild expansion; negative means contraction.
Caution: Remember that regional manufacturing indicators are quite volatile. The trend in a three-month moving average is more reliable than the swings in any single month. Don't overreact to a one-month number; focus on the direction of the trend.
Related economic indicators
Pairing Philly Fed with these indicators gives a more accurate picture of manufacturing and the broader economy.
Relationship with the ISM Manufacturing Index
Philly Fed serves as a preview of ISM. Because Philly Fed comes about two weeks before ISM, the direction of Philly Fed often signals ISM surprises in advance. Monitor the two in sequence.
Comparison with the NY Empire State Manufacturing Index
These two regional manufacturing indicators come out in the same week. If Empire State (New York region) and Philly Fed (Philadelphia region) move in the same direction, conviction in the manufacturing trend is stronger. If they diverge, regional factors may be at play.
Relationship with PPI (Producer Price Index)
Philly Fed's Prices Paid acts as a leading indicator of PPI (Producer Price Index). It shows the chain: manufacturers' input cost changes are reflected in PPI a few months later, which is then passed on to CPI. Keep the Prices Paid -> PPI -> CPI causal chain in mind.
Frequently asked questions (FAQ)
Q. When is the Philadelphia Fed Manufacturing Index released?
A. It is released on the third Thursday of every month at 8:30 a.m. U.S. Eastern Time. In Korean time that is 9:30 p.m. during daylight saving time (March-November) and 10:30 p.m. during standard time (November-March). Because the NY Empire State Manufacturing Index comes out the same week on Monday, you can see two regional manufacturing data points in a row in that week.
Q. If Philly Fed is negative, does that mean recession?
A. One or two negative months does not immediately mean recession. Philly Fed is quite volatile, so it can drop sharply one month and rebound the next. If the three-month moving average is negative and the ISM Manufacturing Index is also below 50, then you can say a manufacturing downturn is underway. But manufacturing only accounts for about 11% of the U.S. economy, so a manufacturing downturn does not equal a full economic recession. Be sure to check services (ISM Services) as well.
Q. Why do Philly Fed and the ISM Manufacturing Index use different baselines?
A. Because of the difference in calculation methods. Philly Fed uses a Diffusion Index of (% up - % down), so 0 is neutral. ISM uses % up + (% no change x 0.5), so 50 is neutral. In ISM's method, "no change" responses get reflected as 50, which is why the baseline is 50. You can't compare the numbers directly; interpret each one against its own baseline in terms of direction and size.
Q. Can data from three states really stand in for the whole country?
A. Not perfectly, but historically it has shown a high correlation. Pennsylvania, New Jersey, and Delaware have a diverse manufacturing base (chemicals, pharmaceuticals, food processing, machinery, and more), so they can be thought of as a miniature version of U.S. manufacturing. However, certain industries (for example, energy and automobiles) are concentrated in other regions, so there are shifts Philly Fed alone can't capture. Pairing it with NY Empire State gives a more balanced picture.
Q. If Prices Paid rises, does CPI always rise?
A. Not always, but the directional correlation is strong. When Prices Paid rises, it shows up in PPI (Producer Price Index) 2 to 4 months later and then gets passed on to CPI. That said, companies can absorb cost increases by squeezing margins, or a stronger dollar can dampen imported prices, weakening the pass-through to CPI. The key is the "trend direction" of Prices Paid rather than the absolute level. An uptrend lasting three months or more means inflation pressure is building.
Q. Which stocks react most sensitively on Philly Fed release day?
A. The Industrials sector is the most directly sensitive. Large manufacturing names like Caterpillar (CAT), Deere (DE), Honeywell (HON), and GE Aerospace react immediately to Philly Fed surprises. The Materials sector is also sensitive, including Freeport-McMoRan (FCX, copper) and Dow (DOW, chemicals). When Prices Paid spikes, Nasdaq futures (rate expectations) can also be affected. That said, Philly Fed is a secondary indicator with less market impact than CPI or NFP, so unless the surprise versus expectations is large, the price moves tend to be limited.