Mid-Atlantic Manufacturing Weakens In February

Two closely watched gauges of factory activity in early February moved in opposite directions.

The New York Fed's Empire State index rose to 22.4 in February, following two soft months, but the Philadelphia Federal Reserve Bank's index fell to 0.6, pointing to a barely growing manufacturing sector in the Philadelphia region. In both indexes, readings over zero indicate growth.

The regional reports came as weekly jobless claims surged by a bigger-than-expected 44,000 last week to a seasonally adjusted 357,000, the Labor Department reported. Much of that increase came from winter storms in the Midwest and Northeast that put more workers in unemployment lines, a department official said. Economists were expecting little movement in the weekly jobless claims data.

Separately, U.S. import prices in January fell 1.2% on a 7.3% tumble in petroleum, and the United States reported a net overall capital outflow of $11 billion in December, down from November's inflow of $70.5 billion, the Treasury said. In addition, export prices on U.S. capital goods rose for the fifth straight month, separate data showed.

Industrial Production Slips

The measures of regional manufacturing activity are followed carefully because they offer cludes to the national Institute for Supply Management survey for February. That report is due out in two weeks.

In January, the ISM index slipped unexpectedly below 50% for the second time in three months.

Another report from the Federal Reserve on Thursday showed industrial production fell 0.5% in January, despite strong levels of increased activity in the utility sector. Manufacturing output fell 0.7%, hurt by a decline in motor vehicle output.

The Philly Fed index slumped unexpectedly to 0.6 in February from 8.3 in January. Wall Street analysts on average had forecast a dip to 5.0, but the result was under even the lowest of projections. In January, the index rose to its highest since August 2006.

"Philly Fed was pretty weak, and ISM is probably still below 50 -- that about sums it up," Joseph LaVorgna, chief U.S. economist Deutsche Bank Securities. "Philly Fed has got a long
track record and actually tells us something of value. It has been my view for a while that 2007 is certainly weaker than late 2006."

The new orders index, a gauge of future growth, fell to minus 0.5 in February after 1.3 in January.

The survey covers eastern Pennsylvania, southern New Jersey and Delaware.

On the other hand, the New York Fed's "Empire State" general factory conditions index surged to 24.35 in February from 9.13 in January, and far above the expected 10.0.

Jobless Claims Rise

Meanwhile, initial jobless claims hit the highest level since November, but most economists acknowledge the weekly figures fluctuate widely and look more to the four-week average and longer trends in this data.

Even so, the four-week moving average rose by 17,500 to 326,250 last week, pointing to some weakness in the labor markets as the economy cools off this year from a robust end to

"I'm not putting faith in this jump to an absurdly high number, but the bottom line is that if you are looking at this number in and of itself, the economy has suddenly taken a turn
for the weaker," said Robert Macintosh, chief economist at Eaton Vance Management in Boston.

The number of workers continuing on unemployment benefits rose by 71,000 to a seasonally adjusted 2.560 million in the week ended Feb. 3, the most recent week these data were
available. That was the highest level since January of last year.