Philly Fed Index components via the St. Louis Fed, chart by Mish

The Philly Fed Diffusion Index is computed a a percentage of respondents indicating an increase minus the percentage indicating a decrease.

Current Conditions

• Current Indicators Improve This Month
• The diffusion index for current general activity rose 12 points to 15.5 in April, its third consecutive positive reading and highest reading since April 2022.
• Almost 38 percent of the firms reported increases in general activity this month, while 22 percent reported decreases; 40 percent reported no change.
• The index for new orders increased 7 points in April, its second consecutive positive reading. The current shipments index rose 8 points to 19.1 this month.
• The firms continued to report an overall decline in employment. The employment index edged down 1 point to -10.7 in April, its 12th negative reading in the past 14 months.
• Most firms (77 percent) continued to report no change in employment, while the share of firms reporting decreases (16 percent) exceeded the share reporting increases (6 percent).
• The average workweek index fell further, from -0.2 to -18.7.

Firms Continue to Report Overall Price Increases

• The prices paid index jumped from 3.7 in March to 23.0 in April, its highest reading since December 2023 and near, but below, its long-run average .
• Almost 26 percent of the firms reported increases in input prices (up from 14 percent last month), while 3 percent reported decreases (down from 10 percent); 70 percent reported no change (down from 75 percent).
• The current prices received index ticked up 1 point to 5.5. Almost 12 percent of the firms reported increases in the prices of their own goods, 6 percent reported decreases, and 82 percent reported no change.

Prices Paid vs Prices Received

In general, more respondents report the prices they pay for goods than respondents report receiving for their goods.

Understanding Diffusion Indexes

I caution that in diffusion indexes only direction matters not magnitude.

A firm reporting prices rose by 5 percent will offset one reporting prices fell by 20 percent.

The same applies to employment. A firm hiring 1 person will offset another laying off 200.

Final Thoughts

When I saw the large and unexpected jump, I decided to create new charts.

I downloaded data for my charts from the St Louis Fed. It has stale data for new orders and costs for wages and benefits.

The Philly Fed said new orders rose by 7 points for a second consecutive positive month. The St. Louis Fed has last month at -3.9 and has no data for this month. This is a St. Louis Fed issue. I will notify them.

Looking at prices paid vs prices received, and employment vs wages and benefits costs, all does not seem well despite the glowing headline number.

If anything, the data looks stagflationary with a caveat about diffusion indexes. It’s hard to reconcile Wages +35.3 with Employment at -10.7 and a Work Week of -18.7 as well, and make anything too positive out of it.

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