Factories Languish as Costs Surge to 28-Year High

U.S. Mid-Atlantic factories pulled back for a seventh straight month as costs shot up to a 28-year high, while data on unemployment benefits pointed to a sluggish labor market.

AP

In a report that underscored the economy's persistent weakness, the Philadelphia Federal Reserve Bank said its business activity index dropped to minus 17.1 in June from minus 15.6 in May, well below Wall Street's forecasts around minus 10.

Prices paid soared to their highest levels since 1980.

"They are pretty bleak numbers," said David Sloan, economist at 4Cast Ltd. in New York. "There is not much to be said in favor of it."

Some analysts are hoping the weaker dollar's boost of exports could help the economy skirt recession, despite a teetering housing market and soft consumer spending. The latest figures indicated otherwise.

"Tentative signs of manufacturing improvement may be getting stopped in their tracks by the surge in energy prices recently," Sloan said.

A reading below zero in the Philly Fed survey indicates contraction in the region's manufacturing sector. The index has not broken above that threshold since November 2007.

Separate data from The Conference Board, a private industry group, suggested the economy has so far avoided an outright contraction. Its index of U.S. Leading Economic Indicators rose 0.1 percent in May after a matching increase in April.

"The economy might even begin to turn a corner early next year," said Ken Goldstein, a labor economist at The Conference Board in New York.

This will depend, of course, on how deeply the housing sector's massive contraction that has brought real estate investment near a halt will affect the labor market.

Jobless claims Mean Hard Times

Here, the signs were not comforting. The number of U.S. workers filing new claims for jobless benefits fell 5,000 last week but still totaled 381,000, not far below levels generally associated with hard times.

"This is recession territory, at least if the experience of 2001 is a guide," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in Valhalla, New York.

Meanwhile, the regional employment outlook deteriorated for a third consecutive month. The Philadelphia Fed's jobs index fell to minus 6.9 in June from a minus 1.0 in May.

The Philly Fed's prices paid index surged to 69.3 in June, the highest since 1980, from 53.8 in May. But companies were having trouble passing on these rising costs to customers. The index for prices received slipped to 29.7 from 31.6.

Copyright 2009 Reuters. Click for restrictions.