Philadelphia Fed Factory Index Dives in May

A measure of manufacturing in the U.S. Mid-Atlantic region grew much more slowly than expected in May, a survey showed Thursday, falling short of even the most pessimistic predictions of a Reuters poll of economists.

The Philadelphia Federal Reserve Bank said its business activity index slumped to 3.9 from 18.5 in April. It was the index's lowest level since October 2010.

Economists had expected a reading of 20, based on the results of a Reuters poll, which ranged from 10.0 to 28.0. Any reading above zero indicates expansion in the region's manufacturing. The index for new orders dropped to 5.4, from 18.8 in April.

"It was, I think, in a word, pretty ugly," said Tom Porcelli, a U.S. economist for RBC Capital Markets in New York. "We're probably past the peak in regard to manufacturing activity, but we don't think manufacturing activity is stopping."

In one bright spot in the otherwise bleak report, the employment index rose to 22.1 from 12.3."This is not quite as bad as it looks," said Michael Montgomery, an economist at IHS Global Insight in Lexington, Mass. "If people are willing to hire, they are not that pessimistic."

The survey, which covers factories in eastern Pennsylvania, southern New Jersey and Delaware, is seen as one of the first monthly indicators of the health of U.S. manufacturing leading up to the national report by the Institute for Supply Management, due at the end of the month.