Manufacturing in the Philadelphia Region Unexpectedly Shrinks

Manufacturing in the Philadelphia region unexpectedly contracted in February for a second month.

The Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 12.5, the lowest reading since June, from minus 5.8 in January. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 58 economists surveyed by Bloomberg projected an increase to 1.

The reading follows New York Fed data released last week that showed factory activity rebounded after six months of contraction, raising prospects that factories could contribute to expansion this year. At the same time, unresolved fiscal policy negotiations and the January increase in payroll taxes may convince companies to hold the line on stockpiles, trimming orders to manufacturers.

“There are some conflicting signals here and there, but overall the sector should improve,” Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, said before the report. “World growth should pick up marginally this year, and that should be supportive of manufacturing in the U.S.”

Bloomberg survey estimates ranged from minus 4 to 10.