Manufacturing contracts slightly for Philadelphia region, employment gauge rises

Analysts were surprised by the negative performance of the region, as forecasts were must higher than what was reported by the Philadelphia Fed.

While the U.S. economy has begun to slow following months of gains for many industries, sectors like manufacturing are still performing better than other areas of the world.

Bloomberg News reported that manufacturing in the Philadelphia region shrank in June at the fastest pace in almost a year, as the output in this area was affected by the global economic slowdown that is hampering demand and holding factories back.

The Federal Reserve Bank of Philadelphia's general economic index fell to minus 16.6 in June, marking the lowest level since August 2011. Despite this drop in overall activity, a gauge of employment in the sector indicated growth from May to this month, as it rose from minus 1.3 to 1.8.

Analysts were surprised by the negative performance of the region, as forecasts were must higher than what was reported by the Philadelphia Fed.

"This is a surprise; the Philly index usually follows a broadly similar trend to the ISM manufacturing index, and that implied a reading of about plus 10," High Frequency Economics chief economist Ian Shepherdson told Barron's.

While some in the industry began to encourage panic about the potential slowdown for Philadelphia manufacturing, others noted that this type of swing is not indicative of a long-term trend.

"We are not happy to see the headline index and the key subindexes drop but the Philly survey is too volatile to be considered definitive evidence of anything much," said Shepardson.

Analysts told MarketWatch that this number simply represented a stagnation in the growth of manufacturing, and companies may be faring better. Despite the recent slowdowns, the industry is still in expansionary territory and could rebound in the near future.

"Our view is that it likely reflects a slowdown in the growth of manufacturing activity rather than an outright decline," Cooper Howes, an economist with Barclays Capital, told the news outlet.

Bloomberg News reported in a separate article that the Chinese manufacturing indices showed a slump in the industry that rivaled the 2008 economic crisis. This type of negative news also highlights how the U.S. sector is not doing as poorly as its competitors and could rebound if an effective business strategy is adopted.

"Beijing’s policy easing so far has not been enough," Qu Hongbin, Hong Kong-based chief China economist for HSBC, told the news outlet. "Probably more needs to be done if they really want to stabilize the growth."