The numbers: The Philadelphia Fed said Thursday its gauge of regional manufacturing activity fell sharply to 2.6 in May from 17.6 in the prior month.
This is the lowest level of activity in two years. Economists polled by the Wall Street Journal expected a 15 reading. Any reading above zero indicates expansion in the manufacturing sector.
Key details: The headline index is based on a single stand-alone question about business conditions unlike the national ISM manufacturing index which is a composite based on components. The subcomponents looked a little stronger.
The barometer on new orders increased 4.3 points to 22.1. The shipments index jumped 16.2 points to 35.3, its highest level since last October.
The employment index fell 16 points to 25.5 in May.
Firms continued to report increases in prices for inputs and their own products. Firms continue to see rising prices over the next year, with the median forecast for the rate of consumer inflation at 6.5%, up from 5% when the question was last asked in February.
The measure on six-month business outlook slumped 5.7 points to 2.5 in May.
Big picture: The Philadelphia Fed index is one of several regional manufacturing gauges that offer timely reads of the manufacturing sector.
Earlier this week, the similar Empire State survey released by the New York Fed showed manufacturing activity contracted, with the business conditions index plunging 36.2 points to negative 11.6 in May.
Economists said the moderation in activity came from slower demand due to higher prices, broken supply chains and shortages.
In April, the national ISM manufacturing index fell to 55.4%, the lowest reading since July 2020. The data for May will be released on June 1.
Market reaction: Stocks DJIA, -3.57% SPX, -4.04% were set to open lower Thursday on continued fear that higher inflation will lead to slower consumer spending. The yield on the 10-year Treasury note TMUBMUSD10Y, 2.893% also softened on the prospect of slower growth.