Business conditions in the Mid-Atlantic region improved only slightly in the last month, according to the

Philadelphia Federal Reserve Bank's

February survey of manufacturers in the Philadelphia, Delaware and Southern New Jersey region.

The index hit -30.5 in February, better than the -36.8 level in

January that had been a nearly 33 point drop from December. Any reading of the index below zero indicates a contraction in activity.

The

Business Outlook Index, an important anecdotal survey of regional business conditions, displays a slight improvement in manufacturing conditions in the last month, but it shows that the manufacturing economy as still severely depressed. Expectations were for the index to come in at -24, according to a survey of economists by

Reuters

.

The report is further confirmation, along with the

National Association of Purchasing Management's

purchasing managers' index, of the manufacturing sector's problems. The Philly Fed report is considered a good precursor of upcoming NAPM reports, which comes out on the first business day of each month.

January's Philly Fed report was the worst for this index in more than a decade, since the 1990-1991 recession. Today's report, well, it's second worst. The percentage of firms reporting declines in shipments, new orders and employment far exceeds the percentage of companies reporting increases. The new orders index rebounded somewhat to -19.6 from -30.9.

Manufacturers' evaluation of existing inventories is improving, suggesting manufacturers are working off existing stockpiles. The inventories category of the index came in at -6.3, an improvement from last month's -13.2 reading. An overhang of inventories causes a drag on economic growth, as manufacturing production slows when there's still stuff on the shelves to get rid of.

Data that came out yesterday showed that business inventories across the country in December rose 0.1%, slower than economists were expecting. Of course, inventories don't matter a whiff if demand doesn't improve, and while new orders were higher, they're still showing significant contraction.

Also displaying improvement was the "future activity index," bouncing back to 4.8 from -16.3 and showing a slight rebound in confidence among manufacturers. This has likely been helped by the

Federal Reserve's two interest-rate cuts in January.