Manufacturing in Philadelphia Area Falls for Third Month

Manufacturing in the Philadelphia region shrank for the third consecutive month as new orders and employment declined.

The Federal Reserve Bank of Philadelphia’s general economic index rose to minus 12.9 in July from minus 16.6 the month before. Economists forecast the gauge would improve to minus 8, according to the median estimate in a Bloomberg News survey. Readings of less than zero signal contraction in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.

The European debt crisis and slowing growth in China and Brazil are limiting demand for U.S. exports. In the U.S., elevated unemployment is restraining consumer spending, while a drought in the Midwest threatens sales of farm equipment made by companies such as Deere & Co. The report showed manufacturers’ outlook for future orders declined.

“You saw not only a continued contraction of activity, but a lessening of optimism,” said Steven Blitz, chief economist at ITG Investment Research Inc. in New York. “There’s nothing in their order books that’s getting them excited. For the economy, it means more of the same low-level growth.”

Other data today showed that sales of existing homes unexpectedly dropped in June to an eight-month low, claims for unemployment benefits rose last week and an index of U.S. leading economic indicators fell more than forecast.

Stocks pared gains after the reports. The Standard & Poor’s 500 Index rose 0.2 percent to 1,375.45 at 10:54 a.m. in New York. The yield on the 10-year Treasury note was little changed at 1.49 percent.

Economists’ Estimates

Estimates for the Philadelphia manufacturing index from 57 economists surveyed by Bloomberg ranged from 3 to minus 15.

The index showed the third straight month of contraction in new orders, to minus 6.9 from minus 18.8. Manufacturers were also less optimistic about the prospects for future business, with the six-month outlook for orders falling to 26.1 from 38.2.

A gauge of employment declined to minus 8.4 this month from 1.8 in June. The six-month outlook for future hiring also worsened by 7.4 points to 11.3.

Economists monitor the Philadelphia factory report and other regional indexes for clues to the Institute for Supply Management’s national figures on manufacturing. The ISM will release its next report on August 1. Its last report showed manufacturing unexpectedly shrank in June for the first time in three years.

“While the broader economic backdrop still remains favorable, the broader indicators we follow are mixed,” Clarence Gooden, executive vice president of CSX Corp. (CSX) in Jacksonville, Florida, said in a July 18 earnings call. “Although these indicators generally still point to continued growth, it is expected to be at a more modest pace.”

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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