Factory activity in Philadelphia region contracts

Manufacturing in the Philadelphia region contracted for the second straight month, providing more evidence that the economy is faltering.

The Philadelphia Federal Reserve Bank said Thursday that its index of regional manufacturing activity fell sharply in June to -16.6, from a -5.8 reading in May. A reading below zero indicates contraction.

Measures of new orders and shipments declined. A gauge of employment showed that companies added workers, after cutting them in May.

But a measure of the average work week plunged to -19.1 from -5.4, a sign that factories are cutting hours.

Despite their gloomy view of current conditions, companies are more optimistic about business conditions in six months. A gauge of future expectations rose to 19.5 in June from 15 the previous month.

Economists cautioned that the Philly Fed index is volatile and does not always reflect the state of manufacturing nationwide.

Paul Dales, an economist at Capital Economics, pointed out that the index fell sharply last August but then bounced back into positive territory two months later.

"The weight of the evidence therefore suggests that the easing in demand in Europe and Asia is taking a toll on the U.S. economy," but that it is still growing, he said in an email to clients.