Jan. 16 (Bloomberg) -- Manufacturing growth in New York state slowed more than forecast this month as new orders and sales deteriorated.

The Federal Reserve Bank of New York's general economic index fell to 9.1 in January, the lowest in 19 months, from a revised 22.2 in December, the bank said today in New York. A number greater than zero signals expansion.

The report reinforces forecasts that U.S. manufacturers will restrain production to work off bloated inventories, curbing economic growth. The New York Fed's index of employment fell to the lowest since July, suggesting the state's manufacturers are scaling back hiring plans.

``There was a big inventory buildup in the second half of last year, and it's about time for a pullback,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``We're looking for the inventory correction to slow down the rate of growth in the first quarter.''

U.S. Treasuries advanced for the first time in more than a week after the report, sending yields lower. The yield on the benchmark 10-year note fell more than 3 basis points, or 0.03 percentage point, to 4.74 percent at 9:29 a.m. in New York.

The New York Fed's index was projected to fall to 19.3, the median of 42 estimates in a Bloomberg News survey of economists, from an originally reported 23.1 in December. Forecasts ranged from 13 to 26.

The index measuring the outlook for six months from now fell to 32.5 from 41.9, today's report showed.

New Orders

The New York Fed's gauge of new orders dropped to 10.3, the lowest since June 2005, from 22.5 in December. The shipments index fell to 16.1 from 27.6. Manufacturing employment fell to 6.9 from 18.6. Today's report reflects revisions to data stretching back to 2001, when the index was started.

A gauge of inventories fell to minus 19.2, the lowest in more than four years, from minus 7.9 the previous month as the state's manufacturers worked off stockpiles at a faster pace.

An index of prices paid for raw materials rose to 35.1 from 28.1. A measure of prices received rose to 19.2 from 13.5.

The New York survey offers an early clue to the state of manufacturing nationwide, which accounts for about 12 percent of the economy. Today's survey will be followed on Jan. 18 by a similar report from the Philadelphia Fed. The Institute for Supply Management releases its nationwide manufacturing report Feb. 2.

`Influential'

``The New York survey and the Philadelphia survey are viewed as being two of the more influential regional surveys,'' said Brian Bethune, director of financial economics at Global Insight Inc. in New York. ``Certainly, we'll be looking at the Philly survey closely. If that follows this pattern then we could see another nationwide ISM reading that drops back below 50.''

This month's ISM report showed manufacturing unexpectedly expanded in December after shrinking for the first time in more than three years in November.

Prior to January, the Empire survey had signaled stronger growth than either the Philadelphia or ISM reports. The drop this month put it more in line with the other measures, said economists including Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.

Stockpiles at manufacturers increased in November to 1.24 months at the current sales pace, the highest since August 2003, a report last week showed.

Industrial Production

A Federal Reserve report on industrial production, which also includes mining and utilities, will probably show an increase of 0.1 percent for December, according to a Bloomberg survey ahead of the Jan. 17 release. That would follow a 0.2 percent gain in November and no change in October.

The Fed, which has left its key interest rate unchanged for four straight meetings after increasing it 17 times, is counting on a slowing economy to help subdue inflation.

At the Dec. 12 meeting, policy makers pointed to manufacturing as an ``additional source of downside risk to economic growth in the near term,'' according to minutes released on Jan. 3. Still, they ``continue to expect the economy to expand at a rate close to or a little below the economy's long-run sustainable pace.''

Growth slowed in the third quarter to a 2 percent annual rate, dragged down by the biggest decline in home building in 15 years. The pace probably picked up to 2.5 percent in the fourth quarter, according to a Bloomberg News survey of economists early this month.

Corning Inc.

Corning Inc., the biggest maker of liquid-crystal display glass, reported receiving fewer glass orders. Chief Financial Officer James Flaws said the reduction in orders isn't enough to hurt the Corning, New York-based company's ability to reach an October profit forecast on sales of up to $1.33 billion.

Manufacturers are getting a boost from growing overseas demand, thanks to a weak dollar and stronger growth in Europe and Asia. Exports rose 1 percent to a record $124.8 billion in November, the government reported last week.

Fairfield, Connecticut-based General Electric Co., the world's second-biggest company by market value, said profit will rise as much as 13 percent this year as it expands abroad.

``We'll deliver a solid, high-visibility, low-risk 2007,'' Chief Executive Officer Jeffrey Immelt told shareholders on Dec. 12.

Immelt stepped up GE's efforts in Asia, the Middle East and Eastern Europe. Orders for power-plant equipment and aircraft engines in Eastern Europe, China and the Middle East may help offset the effects of the slump in U.S. housing.

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

Last Updated: January 16, 2007 10:33 EST