Philly Fed Surprises With August Contraction

PHILADELPHIA (TheStreet) -- Disconcerting economic data continued flowing Thursday morning after a report showed manufacturing activity in the Philadelphia region deteriorated far more than expected this month.

According to the Philadelphia Federal Reserve Bank, an index tracking general manufacturing business conditions registered a -7.7 in August, suggesting contraction in the area's factory ranks. The Philly Fed Index had been positive in July, posting a 5.1 print, and market observers had expected the index to improve to a reading of 7.5 this month, according to consensus projections provided by Briefing.com.

Though growth appeared to dissipate in this most recent look, the report also said "the region's manufacturing executives expect growth in business over the next six months, but optimism has waned notably in recent months."

The Philly Fed cobbles together the measure by surveying manufacturers in its district. A mark above 0 tends to support notions of expansion, while a showing below the mark hints at manufacturing contraction.

Stocks, which were already trading lower after an earlier report showed new jobless claims slumped again last week, accelerated their losses after the Philly Fed release. Most recently, the Dow was down 127 points, or 1.2%, to 10,288, while the S&P 500 was losing 14 points, or 1.3%, to 1,080. And though the main tech headline was news of Intel's(INTC) $7.68 billion acquisition of McAfee(MFE), the Nasdaq was still shedding 26 points, or 1.2%, to 2,190.

Nearly all individual metrics tracked by the Philly Fed report worsened during August. A measure tracking new orders declined to a -7.1 after hitting -4.3. Another sub-index looking at shipments fell into negative territory, dropping to -4.5 from 4 in July. Both prices paid and prices received, too, slumped further in August.

The labor market picture for manufacturing work in the region also regressed, according to the report, as measures tracking the number of employees and average employee workweek slid and began hinting at contraction on both fronts.

--Written by Sung Moss in New York

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