Phila. manufacturing slows sharply, Fed survey shows

After a stellar March, manufacturing activity in the Philadelphia area slowed sharply this month and the outlook for the next six months dimmed, a regional survey released today showed.

"Nearly all of the survey's broadest indicators remained positive but fell from their readings in the previous month," the Federal Reserve Bank of Philadelphia said in its monthly Business Outlook survey.

Some economists and Fed officials nationally have warned recently of the danger of inflation as the U.S. economy improves, and the Philadelphia Fed's report cautioned that price increases paid by manufacturers in the region for raw materials "continue to be widespread, and a significant percentage of firms reported increases in prices for their own manufactured goods."

The survey's main index of manufacturing in the Philadelphia area dropped to 18.5 in April from 43.4 last month. Any index level above zero reflects growth in manufacturing, while numbers below zero signify contraction. April's level was the lowest since November.

The March index was the highest in more than 27 years.

"There's some loss of momentum in manufacturing, partly due to a temporary loss of production related to the shortage of parts" coming from earthquake-ravaged Japan, said Jim O'Sullivan, chief economist at MF Global Inc. in New York. "The weight of evidence still points to pretty solid growth at factories."

But 80 percent of the area's manufacturers said developments in Japan and other international events had had no effect on the availability of raw materials.

The Philadelphia Fed's April survey showed a significant slowing in manufacturers' new orders after seven straight monthly increases. Shipments of finished goods also fell but remained at a relatively high level.

The survey found an overall improvement in the labor market, with more manufacturers reporting an increase in employment than a decrease. Also, about a third of the firms reported a longer workweek for their employees, while only 14 percent said it was shorter than in March.

For the longer term, nearly half the manufacturers said they expect employment levels to rise over the next six months; 7 percent expect to cut jobs.

However, the survey's general index of manufacturing activity for the six-month period fell to its lowest since last September.

The Fed's survey consisted of 89 manufacturers in the eastern two-thirds of Pennsylvania, the southern half of New Jersey and all of Delaware.

Separately on Thursday, the Conference Board, a private research group in New York, said its gauge of future national economic activity rose 0.4 percent in March - a sign that the economy will strengthen by summer. But the group cautioned that consumer concerns over rising gas and food prices could be a drag on economic expansion.

This article contains information from Bloomberg News and the Associated Press.