Manufacturing Sector Shows Slower Growth, Rising Prices
The Philadelphia Federal Reserve’s February 2025 Manufacturing Business Outlook Survey indicated continued expansion in regional manufacturing, although key metrics showed declines. The index for general activity fell sharply from 44.3 to 18.1, while new orders and shipments also dropped but stayed above their long-term averages. Employment growth slowed, with the employment index down to 5.3 from 12.3. Firms reported rising input costs, with the prices paid index hitting its highest level since October 2022. Expectations for future growth remain positive, albeit more subdued.
Price Pressures Persist Across Sectors
Both input and output price indexes rose to multi-year highs, highlighting persistent inflationary pressures. The prices paid index climbed to 40.5, and the prices received index rose to 32.9. Firms expect their own prices to rise by 3.0% over the next year, matching consumer inflation expectations, while compensation costs are projected to increase by 3.9%, suggesting wage pressures that could influence broader inflation trends.
Market Outlook: Cautious Optimism with Inflation Concerns
The labor market remains robust despite a slight rise in jobless claims, and manufacturing activity continues to grow, albeit at a slower pace. While steady employment figures are supportive of economic stability, rising prices and wage pressures could challenge the Federal Reserve’s inflation objectives. For traders, the mixed signals suggest a cautious approach, with potential volatility in equity and bond markets as inflationary pressures may keep interest rate expectations elevated in the short term.
