Philly Fed factory activity contracts again in June

NEW YORK Thu Jun 21, 2012 10:43am EDT

NEW YORK (Reuters) - Factory activity in the U.S. mid-Atlantic region contracted for a second month in a row in June to its lowest level in 10 months as new orders tumbled, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index dropped to minus 16.6 from minus 5.8 in May, far below economists' expectations for a reading of zero, according to a Reuters poll.

The forward-looking new orders gauge fell to minus 18.8 from minus 1.2. Both the activity and new orders indexes were at their lowest levels since August 2011.

The employment components were mixed, with the gauge of the number of employees improving modestly to 1.8 from minus 1.3, but the average work week index slid to minus 19.1 from minus 5.4.

Any reading below zero indicates contraction in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

The Philadelphia Fed's index is seen as one of the first monthly indicators of the health of U.S. manufacturing, which has been one of the strongest areas of the U.S. economic recovery. The index can be more volatile than the larger national report by the Institute for Supply Management (ISM) due at the beginning of next month.

"It's a pretty horrendous result," said Jeremy Lawson, senior economist at BNP Paribas in New York.

"This is a starting to point to a very weak ISM number in June. This is a sign the impetus in manufacturing is fading fast."

U.S. stocks added to losses immediately after the data, while Treasuries prices rose and the euro hit session lows against the U.S. dollar.

Earlier on Thursday, the preliminary look at U.S. manufacturing showed the sector grew in June at its slowest pace in 11 months, hurt by waning overseas demand for U.S. products, a survey from financial information firm Markit showed.

Still, respondents to the Philadelphia Fed survey were more upbeat about the coming months with the gauge of business conditions for the next six months edging up to 19.5 from 15.0.

(Reporting by Leah Schnurr, additional reporting by Steven C. Johnson)