Manufacturing firms responding to the Federal Reserve Bank of Philadelphia's monthly Business Outlook Survey unexpectedly indicated that regional manufacturing activity has contracted in the month of May.
A report released by the Philly Fed on Thursday showed that its diffusion index of current activity fell to a negative 5.2 in May from a positive 1.3 in April, with a negative reading indicating a contraction in regional manufacturing activity.
The decrease by the Philly Fed index came as a surprise to economists, who had expected the index to climb to a positive reading of 2.2.
The Philly Fed noted that all of the survey's broadest current indicators were negative in May, indicating weaker conditions compared with April.
The report showed that the new orders index fell to a negative 7.9 in May from a negative 1.0 in April, while the shipments index tumbled to a negative 8.5 from a positive 9.1.
Indicating continued weakness in regional labor market conditions, the number of employees index dipped to a negative 8.7 in May from a negative 6.8 in April.
Meanwhile, the prices paid index climbed to 6.9 in May from 3.1 in April, pointing to a modest acceleration in the pace of price growth. The prices received index also rose to a negative 3.3 from a negative 7.5.
The Philly Fed also noted that its future activity index jumped to 32.3 in May from 19.5 in April, suggesting improved optimism among the reporting manufacturers.
"U.S. manufacturers aren't exhibiting signs of upside momentum in the spring, pointing to a downbeat May ISM," said Jennifer Lee, senior economist at BMO Capital. "But the outlook is still bright."
On Wednesday, the New York Federal Reserve released a separate report indicating an unexpected contraction in regional manufacturing activity in May.
The report said the New York Fed's general business conditions index fell to a negative 1.4 in May from a positive 3.1 in April. Economists had expected the index to climb to 3.8.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.