UPDATE 1-U.S. Mid-Atlantic factory contraction slows

(Recasts lead, adds details)

NEW YORK, April 16 (Reuters) - The contraction in manufacturing in the U.S. Mid-Atlantic area slowed in April as as result of a less severe deterioration in new orders and labor conditions, a regional Federal Reserve survey released on Thursday showed.

The business reading from the Philadelphia Federal Reserve followed a New York Fed survey on Wednesday that showed the factory sector decline also slowed in New York state this month, offering hopes the hard-hit U.S. manufacturing sector may be stabilizing.

The Philadelphia Fed said its business activity index came in at minus 24.4 in April compared with minus 35.0 in March. A reading below zero indicates contraction in the region's manufacturing sector.

The median forecast among economists polled by Reuters was minus 32.0.

Among the survey's relative bright spots, the new orders index came in at minus 24.3 compared with minus 40.7 in March, while the employee gauge stood at minus 44.9 against March's minus 52.0. For more, see [ID:nTAR001047]

The outlook among Mid-Atlantic companies also improved in April. The Philadelphia Fed's six-month conditions index bounced up to 36.2 from 14.5 in March. The April outlook figure was the highest since October 2007 prior to the start of the current recession.

Despite the less gloomy data, economists expect U.S. manufacturers will face more tough times ahead, forcing them to roll back productions in response to falling global demand.

"Overall U.S. manufacturing output, which has been shrinking since late 2007 and losing momentum at a more rapid rate recently, will remain under pressure in coming quarters, although the rate of decline is likely to moderate from that recorded in the past six months," Joshua Shapiro, chief U.S. economist with MFR, Inc, wrote in a note on the latest Philadelphia Fed data.

The survey covers factories in a region encompassing eastern Pennsylvania, southern New Jersey and Delaware and is looked at closely as one of the first indicators of the health of the U.S. manufacturing sector. (Reporting by Richard Leong; Editing by Andrea Ricci)