Manufacturing activity in the region covered by the Federal Reserve Bank of Philadelphia improved in January after several weak months, as more companies reported higher orders and shipments, the bank said in its latest survey.
The index that tracks overall factory activity rose to 12.6 in January from –8.8 in December. More companies said business improved than declined. About 23% of firms reported gains, 11% reported declines and most said conditions were unchanged.
New orders and shipments both increased. The new orders index rose to 14.4, and the shipments index climbed to 9.5. At the same time, companies reported drawing down inventories, with that index falling to its lowest level since mid-2024.
Hiring continued, but more slowly. The employment index slipped to 9.7. About one in five companies added workers, while 10% reduced staff. The average workweek also shortened.
Price increases remained widespread. Half of the companies said they paid more for materials and supplies. The index for prices paid eased slightly to 46.9 but remained far above normal levels. About one-third of firms said they raised prices for their own products, pushing the prices received index up to 27.8.
In separate questions, companies said they expect smaller increases in material costs in 2026 than they saw in 2025. But they expect labor costs, including wages and benefits, to keep rising. When asked what matters most when setting prices, firms said protecting profit margins ranked first, followed by demand and labor costs.
Looking ahead, companies were still mostly optimistic but less so than in December. The index for expected activity over the next six months fell to 25.5. About 35% of firms expect business to improve, while 9% expect it to worsen.
Companies also expect orders, shipments, hiring and capital spending to grow in the coming months. At the same time, they expect price pressures to remain elevated.
The survey was conducted Jan. 5 through Jan. 12 and includes manufacturers in eastern and central Pennsylvania, southern New Jersey, and Delaware.
The results suggest factories in the region started the year on firmer footing, even as higher costs continue to weigh on operations and outlooks.
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