Philly Fed index well below forecasts

A contraction in U.S. Mid-Atlantic factory output deepened in February as manufacturers pulled back in anticipation of an economic downturn, data from a regional Federal Reserve bank showed.

The Philadelphia Fed said on Thursday its business activity index slumped to minus 24.0, its weakest reading since the 2001 recession. That was down from an already weak negative 20.9 in January, and well below the median forecast of minus 11.0 in a Reuters survey of economists.

Readings below zero represent contraction in the region's industrial sector, which many believe could be in recession. National data have been less dire, suggesting some regions are suffering more acutely from the housing slump than others.

"This is clearly pointing to an economy that is in recession," said Eric Green, economist at Countrywide Financial in Calabasas, California.

The softness was pervasive, with new orders holding well in negative territory, although employment conditions improved.

The index of new orders was at minus 10.9 after January's minus 15.2, although the component measuring the number of employees rose to 2.5 from minus 1.5.

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The six-month business conditions and capital expenditure outlook readings both fell sharply.

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The figures reinforced expectations that the Federal Reserve will continue slashing benchmark interest rates despite burgeoning inflation signals. A separate index of U.S. leading indicators shrank for a fourth month.

"Four monthly declines in a row ordinarily is taken as an indicator of a manufacturing recession," said Pierre Ellis, a senior economist at Decision Economics in New York.