UPDATE 1-NY Fed manufacturing index contracts in May to lowest in 4 months

Wed May 15, 2013 8:46am EDT

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NEW YORK May 15 (Reuters) - Activity in New York state's manufacturing sector unexpectedly contracted in May, falling to the lowest level in four months as new orders and employment pulled back, data from the New York Federal Reserve showed on Wednesday.

The New York Fed's "Empire State" general business conditions index fell to minus 1.43 in May from 3.05 in April, compared to economists' expectations for an increase to 4.

It was the first reading below zero since January, which indicates contraction for the sector.

Economic growth is seen cooling in the second quarter from its 2.5 percent annualized pace at the beginning of the year, though recent better-than-expected data including on the labor market and retail sales have allayed concerns of a significant slowdown.

U.S. stock index futures added slightly to declines shortly after the data as investors were also taking in a report that showed producer prices saw the biggest drop in three years in April.

U.S. Treasuries prices rose further, while the dollar pared gains against the euro.

The report showed new orders also fell to their lowest level in four months at minus 1.17 from 2.20, while inventories tumbled to minus 7.95 from minus 4.55.

Employment gauges slowed as the index for the number of employees declined to 5.68 from 6.82 and the average employee workweek index dropped to minus 1.14 from 5.68.

Companies also felt less optimistic about the months to come, with the index of business conditions six months ahead falling to 25.48 from 31.95.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to national factory conditions.

The New York index contracted through the later part of 2012 and into the beginning of this year before rebounding in February, though the pace of growth has steadily decreased since.

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