Philadelphia Fed Survey

Several economic indicators began flashing yellow last week, and one of the most worrisome is the monthly Business Outlook Survey from the Philadelphia Federal Reserve, which tracks manufacturing conditions in central and eastern Pennsylvania, southern New Jersey and Delaware. One of several regional manufacturing surveys, the Philly Fed report does not carry as much weight as national indicators such as the ISM manufacturing index, but last week’s release showed an eye-popping plunge in activity among the region's manufacturers this month.

New orders declined sharply and inventories rose, both of which will weigh on future production. The sudden deceleration seems related to deteriorating economic conditions in Europe, an important destination for U.S. exporters. Slipping confidence among U.S. consumers and businesses also played a role. The survey results are consistent with the Empire State Manufacturing Survey released earlier last week by the New York Federal Reserve. Activity shrank for a third consecutive month in New York and in two of the past three months in the Philly survey. Manufacturing has been one of the few economic bright spots, so any weakening would hurt the broader economy. In commercial real estate, the industrial property category would be most at risk if the manufacturing slowdown continues.