WASHINGTON (MarketWatch) — Factory activity in the Philadelphia region weakened sharply in August to the lowest level seen in more than two years, the Federal Reserve Bank of Philadelphia said Thursday, adding to fears that the economy has ground to a halt. The Philly Fed’s business outlook survey fell to negative 30.7 in August from 3.2 in July. This is the lowest reading since March 2009.
Readings below zero indicate contraction in the region’s factories.
The size of the decline in the index stunned analysts — economists had expected a reading of 0.5 in August, according to a survey conducted by MarketWatch — and added fuel to Thursday’s rout in the stock market.
On Wall Street, the Dow Jones Industrial Average DJIA -4.13% was recently down 457 points or 4% to 10,953, as investors fled stocks in the wake of a handful of poor or lackluster economic reports. Read more on selling in stocks as investors turn to safe havens.
The Philly Fed index may have had the greatest impact on investors.
It’s closely watched by economists and traders for clues it might shed about the national manufacturing sector. It is one of the first indicators released for August.
Another early look at manufacturing in August, the New York Fed’s Empire State manufacturing survey, was also weak. The survey fell to a reading of negative 7.7, the third straight negative monthly reading.
Economists note that the Philly Fed is a sentiment barometer. They also pay close attention to the components of the report because the headline is its own separate question. In August, all of the details were also weak.
The new orders index plunged to negative 26.8 from 0.1. The unfilled orders index worsened to negative 20.9 from negative 16.3.
The shipments index fell to negative 13.9 from 4.3. The employment index dropped to negative 5.2 from 8.9.
In light of the slowdown in activity, inflationary pressures eased. The prices paid index dropped to 12.8 from 25.1, while the prices received index fell to negative 9.0 from 1.1 in July.
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