Factory activity in the U.S. mid-Atlantic region shrank for a third month in July, though the pace was slightly less severe as new orders improved, a survey showed on Thursday.
The Philadelphia Federal Reserve Bank said its business activity index rose to minus 12.9 from minus 16.6 in June, though it missed economists' expectations for a stronger rebound to minus 8.0.
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The forward-looking new orders index gained to minus 6.9 from minus 18.8.
Any reading below zero indicates contraction in the region's manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.
It 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.
"We are not seeing much of a rebound from the devastating June number," said Sean Incremona, economist at 4Cast Ltd in New York.
"There is underlying softness in manufacturing. It probably understates the broader activity throughout the nation, but it still goes to show you that the weak trends are persisting."
U.S. stocks pared gains shortly after the data as investors also took in reports on the housing market and leading economic indicators. Treasuries prices turned positive and the euro extended losses against the dollar.
The employment components showed labor market conditions deteriorated as the gauge of the number of employees dropped to its lowest since September 2009 to minus 8.4 from 1.8. The average work week index contracted again, though it improved a touch to minus 17.3 from minus 19.1.
Survey respondents' view on the coming months held nearly steady with the gauge of business conditions for the next six months inching down to 19.3 from 19.5.
A tent pole of the U.S. economic recovery, manufacturing has shown signs of wavering and the more comprehensive report from ISM showed the sector shrank last month.
Earlier in the week, data showed manufacturing in New York state picked up in July, though new orders contracted.