The Federal Reserve Bank of New York (search) said Monday that manufacturing in its district fell in May to its lowest level since April 2003, although the outlook for the sector remained positive.

The bank said its Empire State manufacturing index (search) for May dropped to a reading of negative 11.11 versus the revised positive 2.03 seen the month before. May's reading was below the 10.0 predicted by economists.

A negative number means shrinking activity in the manufacturing sector.

The district encompasses New York State, northern New Jersey and Fairfield County in Connecticut.

According to the report, the new orders index fell to negative 7.08 in May, from April's revised negative 1.22. The shipments index hit 0.79, versus April's revised negative 0.95. The New York Fed said that its unfilled orders index lost much ground and fell to a negative 17.26 for May, from April's revised negative 8.20.

Price pressures remained a factor for the New York area manufacturers, with May's prices paid index holding mostly steady at 42.00, from April's revised 43.09, while the prices received index in May was 8.00, versus 13.82 the month before.

The bank also reported soggy performance for hiring, with the number of employees index at 0.16 in May, after April's 8.50. May's job performance was the lowest in more than two and a half years, the New York Fed said.

Against the gloom of the current month, the gauge of expected business conditions over the next half year was mostly steady at a reading of 35.66, from the revised 37.29 seen in April.