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Manufacturing activity in the Philadelphia area has unexpectedly deteriorated in the month of August, the Federal Reserve Bank of Philadelphia revealed in a report on Thursday, with the index of regional activity unexpectedly falling into negative territory.
The Philly Fed said its diffusion index of current activity fell to a negative 7.7 in August from a positive 5.1 in July, with a negative reading indicating a contraction in manufacturing activity. With the decrease, the index turned negative for the first time since July of 2009.
The steep drop by the Philly Fed Index came as a big surprise to economists, who had expected the index to rise to a reading of 7.5.
An acceleration in the pace of contraction in new orders contributed to the weakness in the sector, with the new orders index falling to a negative 7.1 in August from a negative 4.3 in July.
The shipments index also fell to a negative 4.5 in August from a positive 4.0 in July, indicating a contraction in shipments following an expansion in the previous month.
Employment also contracted after expanding in the previous month, with the number of employees index falling to a negative 2.7 in August from a positive 4.0 in July.
With regard to inflation, the prices paid index slipped to 11.8 in August from 13.1 in July, while the prices received index dropped to a negative 12.5 from a negative 8.4 in the previous month.
Looking ahead, the Philly Fed said the future general activity index remained positive for the 20th consecutive month, although it weakened slightly, dropping to 19.6 in August from 25.0 in July.
Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak, said, "While very weak, it follows the 1st August data point seen on Monday, the NY survey, which was just shy of estimates."
"Thus, we need to see other regional surveys and then reconcile it with the national ISM to see just how soft things have gotten," he added.
The report from the New York Federal Reserve released on Monday showed a modest improvement in conditions for New York manufacturers.
The New York Fed said its general business conditions index edged up to 7.1 in August from 5.1 in July, with a positive reading indicating growth in the manufacturing sector. Economists had been expecting the index to increase to a reading of 7.5.
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