(RTTNews) - Activity in the Philadelphia-area manufacturing sector contracted at an accelerated pace in June, according to a report released by the Federal Reserve Bank of Philadelphia on Thursday, with the index of activity in the sector showing an unexpected decline.

The report showed that the diffusion index of current activity fell to a negative 17.1 in June from a negative 15.6 in May, with a negative reading indicating a contraction in the sector. Economists had been expecting the index to narrow to a negative 10.0.

A steep drop in new orders contributed to the acceleration in the pace of contraction in the sector, with the new orders index falling to a negative 12.4 in June from a negative 3.7 percent in May.

The weakness in the sector also reflected a downturn in shipments, as the shipments index fell to a negative 6.7 in June from a positive 2.2 in the previous month. The negative reading indicated a contraction in shipments.

The report also showed a continued deterioration in employment in the sector, with the number of employees index falling to a negative 6.9 in June from a negative 1.0 in May.

The Philly Fed also said that there was an appreciable increase in the share of manufacturers reporting price pressures, with the prices paid index jumping to 69.3 in June from 53.8 in May while the prices received index slipped to 29.7 from 31.6.

Looking forward, the report showed that the region’s manufacturing executives were less optimistic about future activity, with the future general activity index falling to 21.3 in June from 28.1 in the previous month.

Earlier this week, the New York Federal Reserve released its report on regional manufacturing activity, which also showed an unexpected acceleration in the pace of contraction in the sector.

The New York Fed said that its general business conditions index fell to a negative 8.7 in June from a negative 3.2 in May. Economists had expected the index to edge up to a reading of negative 2.0.

A turnaround in shipments contributed to the continued weakness in the sector, with the shipments index falling to a negative 6.5 in June from a positive 4.6 in May. With the decrease, the index fell to its lowest reading since a negative 10.9 in October of 2001.

Continued weakness in new orders also had a negative impact, as the new orders index fell to a negative 5.5 in June from a negative 0.5 in May. The index indicated the fastest contraction in new orders since February.

At the same time, the report showed a modest increase in the pace of employment growth, with the number of employees index edging up to 1.16 in June from 1.09 in May.

The report also showed that the pace of price growth remained at an elevated level. While the prices paid index slipped to 66.3 in June from a record high of 69.6 in May, the prices received index jumped to 26.7 from 15.2 in the previous month.

Looking ahead, the future indexes remained subdued, although they generally improved from May levels. The future general business conditions index rose to 32.2 in June from 23.9 in May, with 47 percent of respondents expecting conditions to improve over the next six months.

The regional reports are likely to have an impact on the outlook for the national manufacturing report released by the Institute for Supply Management. Earlier this month, the ISM manufacturing report showed that activity contracted for the fourth consecutive month in May.

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Posted in Categories: Economy, Forex, Releases, USA.

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