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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May 22, 2026 14:46 ET Minutes of the latest Fed policy session was the highlight of the week along with survey data on the U.S. housing market. In Europe, survey data signaled the trends in the euro area private sector. Further, consumer price inflation data from the U.K. was in focus. In Asia, various economic indicators from China drew attention to the health of the economy.