A plain-English guide to regional Fed surveys vs national ISM.

The twelve regional Federal Reserve Banks each publish monthly economic surveys of businesses in their district. These regional surveys (Philly Fed, Empire State, Richmond Fed, Dallas Fed, Kansas City Fed, Chicago Fed) publish weeks before the national ISM Manufacturing and ISM Services releases. Markets watch them as early signals about the direction of the national manufacturing print. Sometimes they lead national data reliably; sometimes they diverge. This piece is the framework for reading regional Fed surveys as macro signal.

The six most-watched regional surveys

• Empire State Manufacturing (New York Fed). Published ~15th of each month. Covers manufacturers in the New York district (including parts of NJ, CT). Reads as an early signal about East Coast manufacturing.
• Philadelphia Fed Manufacturing. Published ~20th of each month. Covers the Third Federal Reserve District (PA, southern NJ, Delaware). Most-watched regional survey after Empire State because of its historical correlation with the national ISM Manufacturing print.
• Richmond Fed Manufacturing. Published ~25th of each month. Covers Fifth District (Virginia, Carolinas, DC, WV, MD).
• Dallas Fed Manufacturing. Published ~25th of each month. Covers Texas-heavy Eleventh District. Weighted toward energy-sector manufacturing.
• Kansas City Fed Manufacturing. Published ~25th of each month. Covers Tenth District (agricultural and energy-heavy Midwest).
• Chicago Fed National Activity Index. Published monthly. Composite of 85 monthly indicators; more national than regional in scope.

How well do regional surveys predict national ISM?

Historical correlation between the regional-survey composite (weighted average of the five main regional surveys published before ISM) and the subsequent ISM Manufacturing headline is approximately 0.55-0.65 on monthly changes. Meaningful but not high.

The specific Philly Fed correlation with the following ISM Manufacturing print is approximately 0.4-0.5. Empire State is similar. Neither is reliable enough on its own to justify materially repricing rate expectations, but a strongly-aligned batch of regional surveys (all above expectations, or all below) can shift the expected ISM print.

Why regional surveys can mislead

Three specific reasons regional surveys can diverge from the subsequent national print:

• Sample bias. Regional surveys ask a smaller number of businesses (150-200 per survey vs 400+ for ISM). Random sample variation is larger.
• Geographic concentration. A strong Dallas Fed reading might reflect Texas energy strength without corresponding national manufacturing improvement. A strong Philly Fed reading might reflect specific East Coast supply-chain dynamics.
• Different methodologies. Regional surveys use different questions, different diffusion-index calculations, and different seasonal adjustments than ISM. Direct comparison is approximate.

The most common failure mode: a strong single regional print (Philly Fed materially above consensus) that markets initially treat as a national-strength signal, but the subsequent ISM comes in in-line or soft. The reverse also happens.

How markets typically read a big regional surprise

A regional print materially different from consensus (5+ points on the diffusion index) produces a specific market reaction pattern:

• Initial response (first hour): yields move 2-5bp in the direction implied by the print (higher on hawkish, lower on dovish). DXY moves 10-20 pips. Gold moves 0.3-0.8 percent.
• Follow-through (Days 1-3): reduces to approximately 30-50 percent of the initial move as the market discounts the single-regional read.
• Subsequent regional prints: if additional regional prints confirm the direction, the initial move extends. If they reverse, the initial move fully unwinds.
• ISM confirmation: the national ISM print typically produces the decisive reaction; the regional prints have effectively pre-positioned the market.

Reading the Aug 20 Philly Fed shock

Philly Fed at 47.4 versus 25.0 consensus is a 22.4-point beat, well above the 5+ point threshold that triggers a market reaction. Under the framework:

• Initial response was actually muted (yields +4bp, dollar essentially unchanged). This reflects the specific context: the market's dovish repricing from Aug 19 FOMC minutes provided a countervailing force that limited the hawkish response.
• Follow-through: to be determined. The next regional prints (Richmond, Dallas, Kansas City late next week) will confirm or contradict.
• ISM confirmation: ISM Manufacturing publishes September 1. That is the decisive event.

The framework's read: treat the Philly Fed print as a modest hawkish signal but not decisive. If the subsequent regional prints confirm, upgrade to a meaningful hawkish input that would complicate the September Fed cut case. If they reverse, discount the Philly Fed as regional noise.

The composition matters more than the headline

Regional survey headlines are often noisy. The sub-indexes carry more signal:

• New Orders sub-index. Most forward-looking; typically leads the headline by 1-2 months. Aug 20 Philly Fed New Orders at 42.6 is materially firm.
• Employment sub-index. Coincident with NFP for the specific region; can signal broader labor-market direction if aligned across multiple regional surveys.
• Prices Paid sub-index. Leading indicator of input-cost inflation. Aug 20 Philly Fed Prices Paid at 51.3 is elevated but not extreme.
• Six-month expectations. Business sentiment about the coming six months. Materially different readings from the headline can flag inflection points.

Related references

• ISM Manufacturing vs Services: the national manufacturing framework that regional surveys pre-position.
• Surprise indices: how regional and national data-surprise aggregate into broader signals.
• Nowcasting: how regional Fed data feeds into real-time GDP estimates.
• Fed committee splits: the regional Bank presidents' policy views often reflect their district's specific economic conditions.

Regional Fed surveys are useful early signals about direction but noisy on magnitude. A single big regional surprise is not decisive; a batch of aligned regional prints has more signal. The August 20 Philly Fed shock will be tested by subsequent regional prints next week and by the September 1 national ISM release.