The general business conditions index in the Philadelphia Fed manufacturing outlook survey is down to minus 0.3 in August, erasing most of the jump to 15.9 in July from minus 4.0 in June. The decline is below the consensus of 8.0 in the Econoday survey of forecasters. Survey responses continue to reflect erratic current conditions and high levels of uncertainty. However, the future conditions index rose slightly to 25.0 in August after 21.5 in July. It hasn't regained the near-term peak of 53.9 in November 2024, but it has risen for the past two months. The outlook is for modest expansion in the regional factory sector, but also one in which upward price pressures remain and with less ability to pass on costs.

The business conditions index is a diffusion index and not calculated from components. As such, it may not reflect the tone of the detail indexes. In August, the details point to weaker conditions as well.

The index for new orders fell to minus 1.9 in August, wiping out the gain to 18.4 in July. The index for backlogs is down to minus 16.8 in August after 5.7 in July. New orders are not coming in and backorders are shrinking. The region's manufacturers have little to support activity in the coming months.

The shipments index is down to 4.5 in August after 23.7 in July and points to orders moving out more quickly than they are coming in. The delivery times index shows products moving along the supply chain with few delays at minus 5.4 in August after minus 4.7 in July. The inventories index reflects drawdown of stocks after the build up earlier in the year. The inventories index is down to minus 6.2 in August from minus 1.3 in July and 3.6 in June.

The employment index is 5.9 in August after 10.3 in July. Some manufacturers may be hiring skilled workers while labor supply has improved but probably will not continue to do so if orders remain weak. The average workweek index picked up the pace to 4.7 in August from 0.4 in July but only to catch up with the strong orders from July.

The prices paid index is up to 66.8 in August after 58.8 in July and is the highest since 73.6 in May 2022. It is probable that tariffs and/or shortages of some inputs is driving input prices up again. Manufacturers are passing on at lease some of these costs. The index for prices received is up to 36.1 in August from 34.8 in July. Although the index for future prices paid has moderated to 68.4 in August from 75.3 in July, these are some of the highest readings since early 2022. The index for future prices received is down to 48.5 in August from 59.4 in July and points to less ability to pass on higher input costs.

The index, an early read on business in the manufacturing sector for August, is expected to show continued expansion -- but slower -- at 8.0 in August from 15.9 in July and versus minus 4.0 in June.

The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. By tracking economic data such as the Philly Fed survey, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth so that it won't lead to inflation. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation. The bond market is highly sensitive to this report because it is released early in the month and is available before other important indicators.