In the region: Manufacturing sector shows a contraction

The Federal Reserve Bank of Philadelphia's manufacturing index - a canary in the coal mine, so to speak, of certain economic conditions - fell into negative territory this month, the Fed reported yesterday.

The negative 5.7 index reading indicated that the region's manufacturing sector was contracting, reflecting concerns that problems in the housing industry are spreading to the broad economy. A growing number of economists have warned of a recession because of the housing crisis.

It was the Fed survey's lowest reading of manufacturing activity in the Philadelphia area since April 2003, and was down from a positive 8.2 level in November. A zero reading indicates no growth.

The survey is taken monthly among manufacturers in the eastern two-thirds of Pennsylvania, the southern half of New Jersey, and all of Delaware.

Manufacturing executives in the region also appear to be dialing back expectations for 2008. The future general activity index had fallen 30 points in November and dropped an additional four points in December, to 7.7.

"We are beginning to see more and more data that the manufacturing sector is slowing, and the Philadelphia Fed's report adds to those worries," said Joel Naroff, chief economist with Commerce Bank in Cherry Hill.

For December, local manufacturers reported growth in new orders and shipments, but unfilled orders and delivery times were negative.

Weakness also was evident in responses about employment and hours worked. Moreover, manufacturers again said they were paying higher prices for raw materials.