Philadelphia Fed Factory Index Rises Unexpectedly

By Shobhana Chandra

Sept. 18 (Bloomberg) -- Manufacturing in the Philadelphia region unexpectedly increased in September, the first expansion in 10 months, as orders and shipments improved and signs of inflation moderated.

The Federal Reserve Bank of Philadelphia's general economic index rose to 3.8 this month from minus 12.7 in August, the bank said today. Economists expected a drop. Positive readings signal expansion. The index averaged 5.1 last year.

Exports are helping some American factories counter softening demand in the U.S. Still, job losses, a housing recession and a credit crisis that sent Lehman Brothers Holdings Inc. into bankruptcy this week may limit any sustained gains in manufacturing output, economists said.

``Overwhelmingly exports are helping,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland. ``Inventories are at relatively healthy levels and are no longer a weight on the factory sector.''

Economists expected the Philadelphia index to rise to minus 10, according to the median of 56 forecasts in a Bloomberg News survey. Estimates ranged from minus 5 to minus 15.

A Labor Department report today showed initial jobless claims in the U.S. unexpectedly rose last week, led by a jump in filings in Louisiana after Hurricane Gustav. The number of Americans filing first-time claims for unemployment benefits increased by 10,000 to 455,000 in the week ended Sept. 13.

Leading Indicators

A Conference Board report today showed the index of U.S. leading economic indicators fell more than forecast in August, signaling the growth outlook dimmed even before the latest collapse in financial markets.

The Conference Board's gauge fell 0.5 percent after a 0.7 percent decline the prior month, the New York-based private research group said.

The Philadelphia Fed's index of new orders rose to 5.6 from minus 11.9. The shipments index increased to 2.6 from minus 3.3 a month earlier. The employment reading was little changed at minus 0.9 after minus 1.1.

The gauge of prices paid slowed to 31.5 after 57.5 the prior month, while an index of prices received declined to 15.5 from 27 in August.

The inventory measure worsened to minus 22.9 from minus 6.6. A negative number means stockpiles are shrinking.

Expectations for the next six months rose to 30.8 from 27.6.

The headline index isn't composed of the individual measures and some economists consider it a gauge of business sentiment.

Job Cuts

A report earlier this week from the New York Fed showed manufacturing in the region shrank in September, a sign companies are concerned about the collapse in credit markets and cooling consumer spending.

The regional surveys provide early clues to the health of manufacturing nationwide, which accounts for about 12 percent of the economy.

Industrial production fell in August by the most in almost three years, the Fed reported this week. Car output slumped 12 percent, the most in a decade, and declines ranged from semiconductors to building supplies.

Manufacturers are also reducing workers. Federal-Mogul Corp., a maker of automotive piston rings and spark plugs, will eliminate 4,000 jobs globally because of slowing vehicle sales.

``We are taking actions in response to a downturn in regional markets and global industry outlook,'' Chief Executive Officer Jose Maria Alapont said in a statement on Sept. 17.

Some firms are getting help from abroad. Quixote Corp., a maker of yellow highway crash cushions, expects full-year sales in China will triple, Chief Executive Officer Leslie Jezuit said this week.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net