Phila. Fed Report Shows Drop in Manufacturing

Activity at mid-Atlantic factories slumped this month, according to a Federal Reserve Bank report that suggested the economy had yet to pull out of a summer soft patch.

In its mid-Atlantic factory report (search), the Federal Reserve Bank of Philadelphia (search) said its business activity index dropped to 13.4 in September from 28.5 in August, at odds with market expectations for a mild decline, if not a gain.

Policy-makers have made it clear they believe rates are too low for what appears to be a self-sustaining expansion.

But analysts think the Fed may take a breather from the rate-hike campaign started in June as long as inflation is in check, unless signs emerge of a big economic surge.

Economists said the Philadelphia Fed's report, which they look to as a guide to the health of the entire U.S. manufacturing sector, was a mixed bag. While the overall index fell, gauges on new orders and employment rose.

"The message here is that reasonably strong growth continues in the manufacturing sector, although there may be some slowing in the pace of growth, said Dean Maki, an economist with J.P. Morgan Chase in New York.