Mid-Atlantic Manufacturing Enters Contraction

Mid-Atlantic manufacturers reported an unexpected decline in factory activity this month, reversing November's improvement and providing further indication that producers continue to struggle with weak demand and adverse currency rates. The Federal Reserve Bank of Philadelphia said its index of general business activity covering the regional factory sector tumbled to -5.9 in December from 1.9 a month earlier. Readings below zero denote contraction, and the index has been below that level in three of the last four months. Economists surveyed by The Wall Street Journal expected the gauge to hang above the expansion threshold and anticipated a reading of 1.0. Firms in the region reported a sharp decline in new orders, sending that subindex about six points lower to -9.5, while a gauge of unfilled orders dropped to -17.7 from 2.4. Producers commanded lower prices in December, pushing the prices-received subindex down to 8.7 from -0.4. Despite weaker conditions, labor market indicators improved slightly. The index measuring the number of employees rose to 4.1 from 2.6, and firms snapped a streak of declines in the average number of hours employees worked. As conditions deteriorated during the month, producers in the Philadelphia region turned decidedly more pessimistic about future prospects. The six-month outlook gauge slid to 23.0 from 43.4--the lowest reading in about three years--as firms predicted drop-offs in new orders, shipments and pricing power. Though employment measures improved in December, producers signaled that that may not last: The future employment index declined to 5.5 from 13.4 in November. Producers also suggested they plan to reduce capital spending, sending that gauge down to 10.9 from 25.9. The Philadelphia-area survey is one of several regional manufacturing reports economists and analysts use to forecast the health of the nation's manufacturing sector as reported by the Institute of Supply Management in its monthly report next due on Jan. 4, 2016. Earlier this week, a report from New York state showed conditions there improved this month, though they continued to contract for the fifth straight month. Write to Lisa Beilfuss at lisa.beilfuss@wsj.com