April 17 (Bloomberg) -- Manufacturing in the Philadelphia region shrank by the most since 2001 and the number of Americans receiving jobless benefits jumped to a four-year high as the economic slowdown showed little sign of abating.

The Federal Reserve Bank of Philadelphia reported that its general economic index in April fell to minus 24.9, lower than economists had forecast. The release came after reports this week on factories in New York state and national production that indicated manufacturing might be stabilizing.

The housing slump, now in its third year, is eroding demand for building materials, furniture and appliances, spurring job cuts and reducing spending by companies and consumers. Today's factory report overshadowed the first increase in six months in the Conference Board's index of leading indicators, which points to the economy's direction over the next three to six months.

``The Philly Fed index corroborates a lot of other evidence out there that the economy is in a recession,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``Demand is down. That demand is partly related to the housing recession and also to the fact that costs have risen.''

Treasuries dropped, sending 10-year note yields to 3.73 percent at 5:49 p.m. in New York, from 3.69 percent late yesterday. The Standard & Poor's 500 stock index advanced less than 0.1 percent to 1,365.56.

Some of the decline in the Philadelphia index may have been the result of a strike at American Axle & Manufacturing, a Detroit-based auto-part supplier, said Ian Shepherdson, an economist at High Frequency Economics in Valhalla, New York.

Jobless Claims

The Labor Department reported earlier today that initial claims for unemployment insurance increased by 17,000 to 372,000 in the week that ended April 12. The number of people on benefit rolls climbed to 2.98 million the previous week, the most since June 2004.

``These numbers are consistent with a soft labor market, maybe continued job losses, but not a big collapse in the economy,'' said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, in an interview with Bloomberg Television.

The Conference Board's gauge increased 0.1 percent, as forecast, after falling 0.3 percent in February, the New York- based private research group said today.

The increase in last month's index brings the decline for the last six months to a 3.3 percent annual pace. A drop of 4.5 percent or more over six months usually correlates with a recession, according to the Conference Board.

``While latest data do not support the assertion that we are in a recession, growth remains weak, a situation that may continue,'' Ken Goldstein, a Conference Board economist, said in a statement.

Defying Forecasts

Economists had forecast the Philadelphia manufacturing index would rise to minus 15.0, according to the median of 52 estimates in a Bloomberg News survey.

Today's report from the Philadelphia Fed provides one of the month's earliest clues to the state of manufacturing nationwide. It contrasts with a report from the New York Fed released April 15 showed its manufacturing index tipped into positive territory this month after falling to its lowest level on record the prior month.

Nationwide, manufacturing contracted in March at a slower rate after falling the prior month at the fastest pace in almost five years, according to an April 1 survey from the Institute for Supply Management. ISM's factory survey for April is scheduled for release on May 1.

The Philadelphia Fed's measure of new orders declined to minus 18.8 from minus 9.3 the prior month, and a measure of shipments decreased to minus 8 from minus 6.3 the prior month.

Axle Strike

The strike at American Axle has spurred General Motors Corp. to idle or close some plants since the strike began in February.

The Philadelphia region has a high proportion of firms that supply makers of steel, machinery and electrical-components that are used in the auto industry, said Michael Trebing, an economic analyst at the Philadelphia Fed. Still, he added, ``the number of firms we have in the transportation industry is not a great share of the survey.''

The area, which comprises eastern Pennsylvania, southern New Jersey and Delaware, is more vulnerable to the auto slump and less exposed to financial services and trade than the New York region, which encompasses New York state and northern New Jersey, economists said.

Consumer and corporate demand have weakened as the housing market faces its worst recession in a generation, costing jobs and undermining confidence. Tighter credit spawned by subprime mortgage defaults last year is further hampering growth in orders and output.

Profits Hit

Carpenter Technology Corp., a steel and specialty-metals producer, said April 14 its third-quarter profit excluding one- time items fell as costs increased and slowing economic growth eroded demand.

``Results for the 2008 third quarter reflected reduced demand in Carpenter's economically sensitive automotive, industrial and consumer end markets, combined with higher operating costs,'' the Wyomissing, Pennsylvania-based company said.

Price Indexes

An index of prices paid declined to 51.6 from 54.4, while a gauge of prices received rose to 30.9 from 21.2 the prior month, the Philadelphia Fed report showed. The index measuring the manufacturing outlook for six months from now rose to 13.7 from minus 0.5.

Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn. They raised the odds of a recession to 70 percent, from 50 percent in the month- earlier survey.

Fed policy makers, in their latest monetary meeting March 18, also saw increased likelihood of a downturn this year.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' according to the minutes of Fed's March meeting released last week.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 17, 2008 17:57 EDT