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Manufacturing in Philadelphia Region Shrinks at Faster Pace

Manufacturing in the Philadelphia region shrank in June at the fastest pace in almost a year, showing the global economic slowdown is holding factories back.

The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 16.6 in June, the lowest level since August, from minus 5.8 the previous month. Economists forecast the gauge would improve to zero, the dividing line between growth and contraction, according to the median estimate in a Bloomberg News survey. The report covers eastern Pennsylvania, southern New Jersey and Delaware.

Manufacturing may keep ebbing as consumer spending, business investment and exports cool, reflecting the slowdown in global growth caused, in part, by the European fiscal crisis. The Federal Open Market Committee announced yesterday it would extend its efforts to keep long-term interest rates low in an effort to protect the expansion.

“It just reflects the sort of broader slowing we’re seeing,” Peter Newland, a New York-based U.S. economist for Barclays Plc, said before the report.

Stocks dropped following the report. The Standard & Poor’s 500 Index fell 0.4 percent to 1,350.46 at 10:19 a.m. in New York.

Estimates from 57 economists surveyed by Bloomberg ranged from 10 to minus 8.

Less Growth

Another report today showed manufacturing in the U.S. grew at a slower pace. The Markit Economics index fell to 52.9 in June from 53.9, the London-based group said in its preliminary estimate today. A reading above 50 in the purchasing managers’ measure indicates expansion.

Other data today showed more Americans than forecast filed claims for jobless benefits last week and sales of existing homes dropped in May.

The Philadelphia Fed’s new orders measure slumped to minus 18.8, also the lowest since August, from minus 1.2 in May. A gauge of employment improved to 1.8 in June from minus 1.3.

A measure of shipments gauge dropped to minus 16.6, the lowest since September, from 3.5. The index of the average workweek plunged to minus 19.1, the weakest in three years, from minus 5.4 in May.

The Philadelphia Fed’s report also showed inflation ebbed. The bank’s gauge of prices paid fell to minus 2.8. The measure of prices received declined to minus 6.9.

Sentiment Index

Individual measures in the index don’t contribute to the headline reading, so some economists consider it a gauge of sentiment among manufacturers.

The region’s manufacturers grew more optimistic about the future. The index of the outlook for six months from now improved to 19.5 from 15 in May.

The Philadelphia Fed’s index was in synch with other regional data. Manufacturing in the New York area expanded in June at the slowest pace in seven months, a report last week from the New York Fed showed. The bank’s general economic measure, the so-called Empire State index, dropped to 2.3 from May’s 17.1.

Economists monitor Philadelphia and New York Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing. The ISM will release its next report July 2.

The Federal Open Market Committee announced yesterday that it would extend its program to replace short-term bonds with longer-term debt by $267 billion through the end of the year in an attempt to protect expansion.

The FOMC cited sustained high unemployment and slow growth in household spending.

The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the FOMC said in a statement at the conclusion of a two-day meeting in Washington.

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