Wages
Service-sector employers in the Philadelphia Federal Reserve’s region reported the most widespread increase in wage and benefit costs in four years this month, even as their hiring gauge eased. The Philadelphia Fed’s Nonmanufacturing Business Outlook Survey, released Tuesday, Oct. 20, showed the wage and benefit costs index rising from 40.7 in September to 48.5 in October.
That is the index’s highest reading since October 2022, when it stood at 49.6, according to the bank’s historical survey data. In October, 51.3% of responding firms said wage and benefit costs rose, 43.7% reported no change and 2.7% reported a decrease.
The reading is a diffusion index: the share of firms reporting an increase minus the share reporting a decrease. It shows how widespread cost increases are, not how large they are, and it does not measure wages paid to any individual worker.
Hiring gauge eases but stays positive
Employment readings softened while staying in positive territory. The full-time employment index fell 7 points to 12.0. Twenty-nine percent of firms reported more full-time staff, 17% reported fewer and 53% said employment was steady. The index for part-time, temporary and contract workers fell from 10.7 to 1.3, which the bank said reversed its gain from the month before. The average employee workweek index rose to 11.3 from 8.5.
The full-time employment index has swung sharply this year. It was negative from March through June, rebounded to 12.4 in July, slipped to 2.1 in August and jumped to 19.0 in September before October’s decline.
Activity improves at firms, not across the region
Respondents reported better conditions at their own companies. The index for general activity at the firm level rose about 13 points to 12.9, its highest reading since July. More than 38% of firms reported increases, up from 25% in September. New orders rose from -2.2 to 2.8, the first positive reading since July, and sales and revenues climbed 8 points to 14.6.
Firms’ views of the wider region moved the other way. The regional activity index slipped to -23.6, its lowest since June, meaning more firms see the regional economy weakening than strengthening.
Costs rise faster than prices
The gap between what firms pay and what they charge widened. The prices paid index rose 4 points to 42.1, its fourth consecutive increase and highest since April. Almost half of the firms reported higher input prices. The prices received index fell 11 points to 8.6, its lowest since April, and 67% of firms reported no change in their own prices.
Taken together, higher labor and input costs and softer pricing power could squeeze margins. The survey does not show whether firms will respond by slowing hiring, but it is one indicator to watch in coming months.
Outlook and spending plans
Firms still expect growth, though fewer of them do. The six-month outlook index for activity at their own firms fell 9 points to 11.3, its lowest since June, with 44% expecting increases and 33% expecting decreases. The future regional activity index fell 11 points to -9.0.
In a special question on next year’s capital spending, 44.4% of firms said they expect total capital expenditures to be higher in 2027 than in 2026, and 25.9% expect them to be lower. Software had the strongest expected increase, with 37.9% of firms planning to spend more and 13.8% planning to spend less.
About the survey
The survey asks high-level executives at nonmanufacturing firms in the Third Federal Reserve District, which covers Delaware, southern New Jersey and eastern and central Pennsylvania, about conditions at their companies. Participation is voluntary. October responses were collected from Oct. 5 to Oct. 15, and all indexes are seasonally adjusted. The results describe that region only and are not national, Georgia or Atlanta figures. The next survey is scheduled for release on Nov. 24.
Sources
- Federal Reserve Bank of Philadelphia, “Nonmanufacturing Business Outlook Survey – October 2026 Report,” October 20, 2026. https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/nbos-2026-10
- Federal Reserve Bank of Philadelphia, “Nonmanufacturing Business Outlook Survey Data” (historical diffusion indexes), accessed October 20, 2026. https://www.philadelphiafed.org/-/media/FRBP/Assets/Surveys-And-Data/NBOS/nboshistory.xlsx
- Federal Reserve Bank of Philadelphia, “Nonmanufacturing Business Outlook Survey Methodology,” accessed October 20, 2026. https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/nbos-methodology
Featured photo: Center City Philadelphia, with City Hall's tower at left, photographed Oct. 12, 2018. Representative image; not a depiction of firms in the Philadelphia Fed survey. Photo: Peetlesnumber1, via Wikimedia Commons (CC BY-SA 4.0). Cropped from the original.
