Lower energy costs eases pressure on factories

NEW YORK (Reuters) - U.S. Mid-Atlantic factory activity shrank for a ninth straight month in August, but the pace of decline moderated as businesses found relief from a sharp pullback in energy costs, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index rose to minus 12.7 in August, its highest level since December, from minus 16.3 in July.

Any reading below zero indicates contraction in the region's manufacturing sector, which by this measure has been shrinking since late last year.

The reading beat Wall Street forecasts for a modest uptick, but analysts said the outlook was far from rosy.

"The region's manufacturing sector remains weak," the Philly Fed said in its report.

Improvement came mainly from the biggest drop in prices paid since October 2005, when Hurricane Katrina devastated the Gulf Coast and its effects rippled throughout the economy. The prices paid index plummeted to 57.5 from 75.6.

Falling energy costs seemed to be making factory managers more optimistic.

"Most of the survey's future indicators moved higher this month, suggesting that the region's manufacturing executives believe growth in their sector will return over the next six months," the report said.

The survey covers factories in a region encompassing eastern Pennsylvania, southern New Jersey and Delaware, and is looked at closely each month as one of the first hints on the health of the U.S. manufacturing sector.

(Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)