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Mid-Atlantic factories sluggish in September

Factory activity in the U.S. Mid-Atlantic region slumped in September, a survey showed Thursday, spurring fears that the economy's soft patch over the summer could extend into the fall.
/ Source: Reuters

Factory activity in the U.S. Mid-Atlantic region slumped in September to its lowest level in more than a year, a survey showed Thursday, spurring fears the economy’s soft patch over the summer could extend into the fall.

The Philadelphia Federal Reserve said its business activity index dropped to 13.4 in September from 28.5 in August, although components, including new orders improved. It was the lowest reading since July 2003.

Although economists’ initial forecasts were for a fall to 24.5, many analysts had been anticipating a stronger number after a neighboring New York Fed survey showed a rebound.

“Manufacturing in that district is still expanding, but now at a slower pace. It is consistent with the idea that the economy is growing at a slower pace than in the first half of the year,” said Bill Hornbarger, bond strategist at A.G. Edwards.

U.S. Treasuries and interest rate futures all jumped after the weaker-than-expected report, while the dollar weakened against the euro, as traders bet softer economic growth would force the Federal Reserve to pause in raising interest rates later in the year.

The Philadelphia Fed’s index has shown expansion, or a reading above zero, for 16 months. While the U.S. economy hit a bump earlier in the summer, the manufacturing sector has shown moderate, if not dramatic, growth in recent months.

But beneath the headline, some key components improved. The headline index reading is compiled from a separate question in the survey.

The new orders index, a pointer to future growth, actually increased to 26.4 from 19.2 in August. Employment in the sector also rose to 21.5 from 17.2, the Philly Fed said.

The prices paid component also rose, as firms continued to report higher production costs. The index rose to 56.4, its highest reading since May and 26 points higher than at the end of last year.

Yet higher costs are not yet appearing in final prices, as a benign August consumer prices report showed earlier Thursday.

The Philly Fed survey is one of the first indicators of U.S. manufacturing every month and is often used to gauge the overall state of the nationwide sector.