Philly Fed factory gauge plunges in June
WASHINGTON (MarketWatch) -- A gauge of factory activity in and around Philadelphia plunged in June, raising fears the economy could be in a new soft-patch.
Factory activity in the Philadelphia region fell to its lowest level in more than 10 months in June, the Philadelphia Federal Reserve Bank said Thursday.
The Philly Fed's business outlook survey fell to negative 16.6 from negative 5.8 in May. This is the weakest reading since last August when economists were worried that the economy might stall.
Details of the report were weak. The indexes for new orders, shipments and unfilled orders worsened to their lowest readings of the year. The price index dropped, showing that inflation pressures continue to ease.
The decline in the index surprised analysts. Economists expected a reading of 0.0, according to a survey conducted by MarketWatch. See comprehensive MarketWatch economic calendar.
Another early look at manufacturing in June, the Federal Reserve Bank of New York's Empire State manufacturing survey, dropped to 2.3 in June from 17.1 in May.
The Philly Fed index and the Empire State index are closely watched by economists for clues they might shed about the national manufacturing sector. They are some of the first indicators released for June.
In May, the Institute for Supply Management's factory index fell to 53.5 from 54.8 in the prior month. The June reading will be released on July 1.
Analysts noted that the Philly Fed index has softened over the past two summers but the ISM did not move significantly.
"Our view is that it likely reflects a slowdown in the growth of manufacturing activity rather than an outright decline," said Cooper Howes, an economist with Barclays Capital.
According to the flash purchasing managers' index released by Markit on Thursday, June manufacturing activity grew at the slowest pace in 11 months. The flash PMI slowed to 52.9% in June from a final reading of 54.0% in May. The survey covers 85%-90% of the over 600 companies in the national ISM survey.
The short history of the flash PMI limits its use as a proxy for the national ISM, but both indices show that manufacturing is down slightly from earlier this year but is still in expansionary territory, said Howes.
Other reports released Thursday were generally weak. The Labor Department said first-time jobless claims edged slightly lower in the latest week. Read about continued weak trends in hiring.
The National Association of Realtors also reported that existing home sales slipped 1.5% in May.
There was one bright spot. The Conference Board's index of leading economic indicators rose 0.3% in May, a sign that there is little chance of a recession in coming months.. Read 'Low risk of downturn this year, data show.'