Manufacturing in the U.S. Mid-Atlantic region pulled back from boom-time levels in May as new orders eased, but prospects for hiring improved, a report showed on Thursday.
The Philadelphia Federal Reserve Bank said its gauge of regional industry dropped to 23.8 in May from 32.5 in April, far below economists' forecasts of a dip to 32.0.
Still, that marked 12 straight months that the index was above zero, the threshold that separates growth from contraction.
U.S. Treasuries made further gains after the survey, while the dollar initially eased against the euro and the yen.
"The report does show some backing off from the April high, but it does not undermine what appears to be a significant rebound in the industrial sector," said Banc of America Capital Management chief economist Lynn Reaser.
"Despite a decline in the headline number, the increases in the prices received and employment elements suggest that the manufacturing sector remains on the upswing," she added.
The survey's employment component surged to 22.6 in May, its highest level since April 1973, from 12.2. New orders, a barometer of future growth, fell to 18.3 from 26.1.
Factory employment recovering
Factory employment at the national level has started to recover after three years of layoffs, and the Philly Fed index suggested the region is sharing in the better job prospects.
But a warning signal came from another increase in the prices paid measure, a sharp increase to 59.6, its highest since August 1988, from 51.9 in April.
Financial markets are especially sensitive to news of price pressures, after the broad U.S. consumer price index came in well above expectations for the past three months.
More than half of the firms surveyed, 56 percent, said they expected an increase in prices for their own goods in the next three months, while 39 percent anticipated steady prices.
Thirty-nine percent of the firms surveyed said they are experiencing shortages or delayed delivery of critical raw materials, and over half of these firms reported that these problems have affected rates of production.
The report is one of the first indicators of U.S. manufacturing each month and is closely watched for hints on the overall health of factories, which account for about one-sixth of the U.S. economy.
The Philadelphia Fed is one of 12 regional central banks and serves Delaware, eastern Pennsylvania and New Jersey.