Fed sees Philadelphia area's business in decline

In a fresh sign that the economy is verging on recession, the Federal Reserve Bank of Philadelphia reported yesterday that a growing number of manufacturers this month experienced declining business activity.

"The region's manufacturing sector showed continued weakness in February, as evidenced by negative readings of the indexes for the most broad current indicators, activity, new orders, shipments, and average hours worked," the agency said.

The Philadelphia Fed said its manufacturing index - the gap between firms reporting an increase in activity and those experiencing declining business - rose to minus 24, more than twice the amount analysts had projected.

The Fed said 42 percent of the firms in its survey reported they had suffered business declines while 18 percent reported increases. Forty percent reported no change.

The decline, after a precipitous drop in the preceding month, also was accompanied by a trend toward rising prices for goods and services that manufacturers need to make their products, according to the Fed.

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

The report buttressed support for the view that the economy, hobbled by declining home prices and mortgage lending, is close to a recession, although some analysts predict that the nation might yet avert, however narrowly, a full-blown economic contraction.

The Fed's manufacturing index for the region turned negative in December, when it hit minus 5.7 percent, then the lowest reading since April 2003, when the nation still was struggling to shake off the effects of the last recession.

Local indicators have been on a downhill course since the December survey.

Just as important, the Fed said, the outlook for manufacturing growth over the next six months also declined. It said the percentage of firms expecting decreased activity over the next six months now exceeded the percentage that projected growth.

"The index for future new orders dropped 17 points and moved into negative territory," the Fed said.