Philadelphia Fed's Factory Index Plunged in October

By Shobhana Chandra

Oct. 16 (Bloomberg) -- Manufacturing in the Philadelphia region shrank in October at the fastest pace in almost two decades, a sign the worsening credit crush is pushing the economy into a deeper slump.

The Federal Reserve Bank of Philadelphia's general economic index plunged to minus 37.5 this month, less than forecast and the lowest reading since October 1990, from 3.8 in September, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.

The decline signals manufacturing isn't recovering after a separate report showed industrial output dropped in September by the most in almost 34 years. More reductions in production are likely as job losses and tougher lending rules hurt sales.

``The manufacturing sector, which had already been feeling pain for several months, is now suffering pronounced weakness as domestic demand craters and export growth slows substantially,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

Economists expected the Philadelphia index to fall to minus 10, according to the median of 54 forecasts in a Bloomberg News survey. Estimates ranged from 5 to minus 25.

Production at factories, mines and utilities dropped 2.8 percent in September, exceeding forecasts and following a revised 1 percent decrease in August, the Fed said today. Last month's Gulf Coast hurricanes accounted for 2.25 percentage points of the decline and a strike at Boeing Co. subtracted another half point. The decline in output was the biggest drop since December 1974.

Orders Slump

The Philadelphia Fed's index of new orders slumped to minus 30.5, the lowest level since August 1980, and the shipments index decreased to minus 18.8 from 2.6.

The gauge of prices paid declined to 7.2, the lowest level since July 2003, after 31.5 the prior month, indicating that prices rose at a slower pace. An index of prices received was 5.3, down from 15.5.

The employment index was minus 18 after being little-changed in September.

The headline index is a separate question unrelated to the individual measures and some economists consider it a gauge of business sentiment.

Expectations for the next six months fell to minus 4.2 from 30.8, today's report showed.

The New York Fed yesterday reported its Empire index of manufacturing sank in October to the lowest level since records began in 2001. The regional surveys provide early clues to the health of manufacturing nationwide, which accounts for about 12 percent of the economy.

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