Manufacturing activity in the Mid-Atlantic region contracted at a greater-than-expected pace in December, according to the Philadelphia Federal Reserve.
The Philadelphia Fed reported its business activity index fell to a surprising -4.3 in December, the lowest level since April, 2003. The index was at 5.1 in November, and Wall Street analysts had forecast a gain of 4.0 for the December period.
The index has been hovering around zero since September. Any reading below zero indicates contraction in the region's manufacturing sector.
The unexpected contraction follows earlier reports showing further weakening in the economy, including a downward revision in the third quarter GDP and the Conference Board's index of leading economic indicators.
Traders said data inside the Fed survey showed an interesting transfer of pricing power to producers and higher prices for consumers. Prices paid for raw materials fell to a level of 20.6 from 26.7 in November, while prices received for products rose to 9.9 from 5.7.
In the Philly survey, the new orders index, a gauge of future growth, was at -2.4 in December from -3.7 in November.
Reading Was "Disappointing"
The reading was "very disappointing," said David Wyss, chief economist at Standard & Poor's on CNBC's "Power Lunch."
Wyss noted that last week, the New York Fed's Empire State index came in stronger than expected. "So it's a little puzzling why the Philly Fed is doing badly and New York doing well," he said.
Speaking on the economy shortly after the Philly Fed's midday release, Richmond Federal Reserve Bank President Jeffrey Lacker warned that inflation remains the biggest risk to the economy. He also warned that housing could continue to impact the economy next year.
Lacker's comments weighed on the stock market, already moving lower on the Philly Fed survey, while bond yields edged higher.
The Philadelphia Fed survey is one of the first regional manufacturing reports of the month, and it is often viewed as a precursor to national manufacturing activity. The survey covers activity in eastern Pennsylvania, southern New Jersey, and Delaware.
According to Wyss, the Philadelphia survey may be a more meaningful glimpse at manufacturing activity because there is a greater amount of factory activity in the Philadelphia region compared with the New York region.
Looking within the report, Pierre Ellis, a senior economist at Decision Economics, said there continues to be strength in employment, which is "a sign of ongoing confidence."
"Fed report is one of reasonable health and confidence despite the deterioration in the headline index which is freestanding, independent of the other measures in this survey," Ellis said.
Third-Quarter GDP Revised Lower
Still, the regional measure followed a host of other data out earlier in the day that suggested that the economy may be losing steam.
Notably, the Commerce Department reported that the nation's economy grew at a slightly slower pace than previously thought in the third quarter.
Gross domestic product, the broadest measure of overall economic activity in the U.S., expanded at a revised 2% annual rate in the third quarter, instead of the 2.2% rate estimated a month ago. This is a slowdown from the second quarter's 2.6% rate of GDP increase.
This data comes as economists remain sharply divided on the pace of economic growth ahead.
Conference Board Sees Growth Ahead
An industry-backed research group offered a sign that the economy will continue to expand modestly in the coming months. The Conference Board's gauge of future economic activity advanced 0.1% in November.
The New York-based group said its Index of Leading Economic Indicators edged up to 138.2 last month following a revised increase of 0.1 percent to 138.1 in October and 0.4 percent to 138.0 in September.
The November performance was in line with analysts' expectations.
"The recent behavior of the leading index so far still suggests that slow economic growth is likely to continue in the near term," the Conference Board said.
Separately, the latest data from the Labor Department suggested some slackening in the U.S. labor market, however, labor markets remain favorable for workers with unemployment sitting at just 4.5%.
The government's latest weekly jobs survey showed the number of U.S. workers seeking first-time jobless benefits rose by 9,000 in the latest week to a seasonally adjusted 315,000. That figures was slightly below the 320,000 expected. .