Philly Fed Manufacturing Index Plunges to -12.8, Undercutting New York’s Optimism — Evening Brief – 10.16.25
The Philadelphia Fed’s Manufacturing Index plunged to -12.8 in October, its lowest level since April, down sharply from 23.2 in September and well below expectations for a positive 7.5, according to data released Thursday. The steep decline stands in stark contrast to the New York Fed’s Empire State Manufacturing Survey earlier this week, which showed strong gains in new orders and employment, underscoring the regional divergence in manufacturing activity as higher borrowing costs, trade uncertainty, and lingering inflationary pressures weigh on business sentiment.
Roughly a quarter of the firms surveyed by the Philadelphia Fed reported decreases in general activity, up from 17% last month, while only 12% saw increases—down from 40% in September—indicating a sharp contraction in optimism.
However, beneath the weak headline number, the details of the survey presented a more nuanced view. The new orders index climbed to 18.2 from 12.4, suggesting demand for manufactured goods remains resilient, while the employment index ticked slightly lower to 4.6 from 5.6, still signaling modest job gains across the sector. The prices paid index increased to 49.2 from 46.8, pointing to persistent input cost pressures from tariffs, supply chain costs, and wage growth, while the capital expenditures index jumped to 25.2 from 12.5, showing that manufacturers remain committed to investing despite softer overall conditions.
Encouragingly, the future general activity index rose five points to 36.2, indicating that firms expect a rebound in the months ahead. Nearly half of respondents (47%) anticipate higher activity over the next six months, compared with just 11% expecting declines, reflecting an underlying sense of confidence in medium-term growth prospects despite short-term weakness.
A special question in the survey showed that 36% of manufacturers plan to increase total capital expenditures next year, compared with 19% who expect to scale back and 45% who foresee no change. The most common areas of planned investment include computer hardware, noncomputer equipment, and software, highlighting an ongoing shift toward automation and digitalization as firms look to boost productivity and offset labor constraints.