Philadelphia Fed Manufacturing Index Turns Positive in January 2026

Manufacturing activity in the Philadelphia Federal Reserve region increased in January 2026, according to the latest Manufacturing Business Outlook Survey. The indicator for general activity jumped from a revised reading of -8.8 in December to 12.6 in January, its highest reading since September and a return to positive territory.

Over 23% of surveyed firms reported increases in activity, up from 21% in December, exceeding the 11% reporting decreases. The shift suggests improving business conditions as manufacturers enter the new year, with 63% of firms reporting no change in current activity.

New Orders and Shipments Show Stronger Demand

Both the indexes for current new orders and current shipments rose in January. The new orders index increased 9 points to 14.4, while the shipments index climbed 6 points to 9.5. These gains indicate strengthening customer demand and production activity across the region’s manufacturing sector.

The inventories index fell 17 points to -8.4, its lowest level since July 2024. This decline suggests manufacturers are working through existing stock levels, which typically precedes increased production to meet rising orders.

For manufacturers managing production planning and cash flow, understanding regional demand trends helps inform inventory management and production scheduling decisions.

Employment Levels Continue Growing Despite Index Decline

Manufacturers continued to report increases in employment, although the employment index declined 3 points to 9.7 in January. Nearly 20% of firms reported employment increases, up from 14% in December, while 10% reported decreases. Almost 70% of firms reported no change in employment levels.

The average workweek index declined from 12.5 to 9.1, suggesting some moderation in hours worked even as overall employment levels expanded.

Manufacturing employment has shown resilience despite economic uncertainty, with regional variations reflecting local industry composition and demand patterns.

Input Costs Moderate While Output Prices Rise

The prices paid index edged down 2 points to 46.9 in January, its second consecutive decrease and lowest level since June. Nearly 47% of firms reported increases in input prices, while 53% reported no change. No firms reported input price decreases.

The current prices received index ticked up 2 points to 27.8. Over 31% of firms reported increases in the prices of their own goods, 3% reported decreases, and 66% reported no change. Both price indexes remained well above their long-run averages.

Manufacturers Expect Smaller Input Cost Increases for 2026

In special survey questions, firms reported their cost changes for 2025 and expectations for 2026. For all three input categories surveyed, the average percent change in costs expected for 2026 was smaller than the actual change reported for 2025:

• Energy costs: 3.6% expected in 2026 versus 4.0% actual in 2025
• Other raw materials: 3.4% expected versus 3.8% actual
• Intermediate goods: 2.7% expected versus 3.5% actual

Labor cost expectations showed different trends. The average percent change in all four labor cost categories for 2026 was equal to or greater than 2025’s reported change:

• Wages: 3.1% expected in both years
• Health benefits: 6.5% expected in 2026 versus 5.9% in 2025
• Total labor costs (wages plus benefits): 6.5% expected versus 5.3% actual

These projections suggest manufacturers anticipate moderating material costs but continued pressure from labor expenses, particularly healthcare benefits.

Pricing Strategy Priorities for Manufacturing Leaders

Survey respondents ranked the importance of various factors in setting prices. Maintaining steady profit margins emerged as the most important factor, followed by demand for their goods and services, wage and labor costs, and nonlabor costs.

This ranking indicates manufacturers prioritize margin preservation while balancing competitive positioning and cost pressures. For companies evaluating pricing strategies and cost management, understanding how peers approach pricing decisions provides context for strategic planning.

Six-Month Outlook Shows Continued Growth Expectations

The diffusion index for future general activity declined from a revised reading of 38.1 in December to 25.5 in January, its lowest reading since July. Despite the decline, the index remains positive, with nearly 35% of firms expecting activity increases over the next six months, exceeding the 9% expecting decreases.

The future new orders index fell 6 points to 32.9, while the future shipments index ticked up 1 point to 40.8. The future employment index rose 4 points to 28.8, suggesting continued hiring plans.

Both future price indexes remained well above their long-run averages. The future prices paid index rose 2 points to 66.6, while the future prices received index moved up 5 points to 61.8. The index for future capital expenditures edged up 1 point to 30.3.

According to the Federal Reserve Bank of Philadelphia, these forward-looking indicators provide insight into manufacturer sentiment and planned business activity across the Mid-Atlantic region.

Regional Manufacturing Trends and Business Planning

The Philadelphia Fed’s survey covers manufacturers in eastern Pennsylvania, southern New Jersey, and Delaware. While regional surveys vary by geography and industry composition, they provide valuable leading indicators for broader manufacturing trends.

The January improvement follows December’s negative reading and suggests manufacturers are entering 2026 with cautiously optimistic outlooks despite ongoing cost pressures and economic uncertainty.

Make operational decisions backed by data, not guesswork. Partner with our advisors to gain better visibility into job costing, production performance, and cash flow.

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