Philly Fed: Factory Activity Slowed in June

Output at factories in the Mid-Atlantic region of the United States slowed this month, a regional central bank said Thursday, the latest evidence that the U.S. economy may be headed for softer growth.

The Philadelphia Federal Reserve (search) said its business activity index fell to minus 2.2 in June, its first negative reading in 25 months, from 7.3 in May.

Wall Street analysts had been predicting a rise to 10.0. A measure below zero in the index points to contraction.

"(The numbers) were pretty weak except for the employment index which has been pr to -19 from -0.1 in May. The delivery times index fell to -13.2 in June from a barely positive reading of 0.5 in May and the employment index rose to 7.1 from 5.4 in May.

"The industrial sector isn't looking too hot," said Jason Daw, senior G-10 strategist at Merrill Lynch.

Whether the nationwide ISM manufacturing index (search) ticks up or down in June, the widely followed measure is likely to move below the 50 level in the next few months, he said. A reading below 50 would point to contraction in manufacturing. The ISM June manufacturing report is due to be released on July 1.

The Philadelphia Fed said price pressures moderated in the mid-Atlantic region in June.

"The index for input prices fell notably this month," the regional bank said. "The diffusion index for prices paid declined from 30.9 in May to 23.5 in June, ... its lowest point in 21 months."

"(That) suggests pipeline inflation pressures are contained," Daw said.

The diffusion index for prices received fell from 28.0 in May to 15.7 in June, its lowest in 18 months, the Philly Fed said.

Despite the weakness in current activity this month, expectations for future growth improved in June, the Philadelphia Fed said. The index for future activity increased to 30.6 in June from 22.3 in May.

The regional survey is one of the first indicators of U.S. manufacturing every month and is often used to gauge the overall state of factories nationwide.